On March 26, 2025, President Trump issued an Executive Order (EO) announcing a 25% tariff on all passenger vehicles and light trucks imported into the United States, as well a 25% tariff on certain automobile parts for those vehicles – specifically, engines and engine parts, transmissions, powertrain parts (including tires), and electrical components. The tariff on complete automobiles went into effect April 3, 2025, and the tariff on auto parts will become effective as of May 3, 2025.
This alert provides an overview of the new automotive tariffs, explains what to expect as these changes come into effect, and discusses how these tariffs relate to the reciprocal tariffs imposed on April 2, 2025, as well as the tariffs on steel and aluminum products imposed in March 2025.
Background
Section 232 of the Trade Expansion Act of 1962 (Section 232) grants the President broad authority to impose trade measures following an affirmative determination by the Secretary of Commerce (Secretary) that certain imports threaten to impair US national security.
In February 2019, during President Trump's first term in office, the Secretary initiated an investigation under Section 232 into imports of automobiles and certain automotive parts and concluded that these imports posed a threat to national security. Based on the Secretary's findings, President Trump instructed the United States Trade Representative (USTR) to seek agreements with the European Union, Japan, and any other country to address the national security concerns over these imports, as well as to monitor imports of autos and auto parts with respect to their impact on national security. Despite these measures, no agreements were reached, and President Trump did not take any further actions during his first term regarding these imports.
In the EO issued last month, President Trump relied on the February 2019 Section 232 report as well as subsequent information, including global supply chain vulnerabilities and the limited impact of the USMCA and the United States-Republic of Korea (KORUS) Free Trade Agreement, as the basis for imposing the new tariffs.
Tariff Provisions
Basic Provisions
The EO specifies that a 25% tariff will be applied to all imports of automobiles listed in Annex I, or in any subsequent annex to the EO, effective April 3, 2025. The effective date for the tariff on automobile parts was not established in the EO itself, but was established in Annex I of the EO as May 3, 2025.
On April 3, 2025, the Trump administration published Annex I of the EO in the Federal Register. Annex I creates Note 33 to Subchapters II and III of Chapter 99 of the US Harmonized Tariff Schedule (HTSUS), which specifies the HTSUS codes of automobiles and auto parts that are, or will be, subject to 25% tariffs under Section 232.
Under Note 33 of Subchapter II, the additional 25% tariff applies to "all entries of passenger vehicles (sedans, sport utility vehicles, crossover utility vehicles, minivans, and cargo vans) and light trucks" entered under the following HTSUS codes:
|
8703.22.01 |
8703.23.01 |
8703.24.01 |
|
8703.31.01 |
8703.32.01 |
8703.33.01 |
|
8703.40.00 |
8703.50.00 |
8703.60.00 |
|
8703.70.00 |
8703.80.00 |
8703.90.01 |
|
8704.21.01 |
8704.31.01 |
8704.41.00 |
|
8704.51.00 |
8704.60.00 |
Annex I clarifies that the additional 25% tariff does not apply to all entries under the listed HTSUS codes. Entries of vehicles under these HTSUS numbers that are "not passenger vehicles (sedans, sport utility vehicles, crossover utility vehicles, minivans, and cargo vans) and light trucks," as well as any entries of passenger vehicles and light trucks that were manufactured at least 25 years before the date the vehicle was entered, are exempted from these tariffs. This 25% duty applies on top of any normal customs duty that may also be applicable to these entries.
The term "light trucks" is not specifically defined in the EO or in the Annex, or in the original 2019 report. However, in the survey issued to the automotive industry for the original Section 232 investigation, the term "light trucks" was defined as "motor vehicles manufactured primarily for the transport of goods; any truck or 'truck derivative' with a gross vehicle weight rating (GVWR) of 8,500 pounds or less, and a vehicle curb weight (VCW) of 6,000 pounds or less; includes pickup trucks (non-passenger automobiles with passenger compartment and open cargo area). Covers the following HTS codes: 8704210000, 8704310020, 8704310040."
Annex I specifies the auto parts that will be subject to the additional 25% tariffs on or after May 3, 2025. Under Note 33 of Subchapter III, automobile parts "include engines and engine parts, transmissions, powertrain parts, and electrical components, and parts of passenger vehicles . . . and light trucks." Similar to the provisions for automobiles, the additional 25% tariffs only apply to auto parts that are parts of passenger vehicles or light trucks. A complete list of the specific HTSUS codes of auto parts that are subject to the additional 25% tariffs is included in Annex I.
Automobiles and Auto Parts from Canada and Mexico
The EO provides for reduced tariffs for imports of automobiles from Canada and Mexico that qualify for preferential tariff treatment under the USMCA. Specifically, importers who can demonstrate that their vehicles qualify as originating goods under USMCA may request the Secretary to apply tariffs "exclusively to the value of non-US content of the automobile."
When applying for preferential tariff treatment under this EO, importers of autos should pay particular attention to the following key provisions:
- Calculation of Non-US Content: Non-US content is calculated by subtracting the value of the US content in the imported vehicle from the total value of the vehicle. US content is defined as the "value of the automobile attributable to parts wholly obtained, produced entirely, or substantially transformed in the United States." It is important to note that the "substantial transformation" test contemplated here differs from USMCA's normal rules of origin for automobiles.
- Penalties for Inaccurate Declaration of US Content
Value: Clause (3) of the EO authorizes CBP to apply the
25% tariff to the full value of the automobile, regardless of the
actual US content, if CBP determines that the declared US content
was overstated.
- Application of Tariffs for Inaccurate Declarations: CBP will apply the 25% tariff both retroactively from April 3 to the date of the inaccurate declaration, and prospectively from the date of the inaccurate declaration to the date the importer corrects the inaccurate declaration, and that correction is verified by CBP. This tariff will apply to the full value of all automobiles of the same model imported by the same importer.
- Temporary Exemption for Auto Parts: Unlike for qualifying vehicles where only the US content is exempted from additional duty liability, the EO provides a temporary exemption for tariff liability on the full entered value of qualifying USMCA auto parts until such time as the Secretary establishes a process to apply tariffs exclusively to the value of the non-US content of auto parts, and publishes a notice in the Federal Register to that effect. As of today, no such notice has been published.
Establishing a Process to Include Additional Auto Parts
The EO mandates the Secretary to establish a process for including additional auto parts articles within the scope of the tariffs by June 24, 2025 (i.e., 90 days after issuance of the EO). Specifically, the EO contemplates a process by which domestic producers of auto parts or an industry association representing such producers can request the inclusion of additional auto parts if they can demonstrate that imports of these parts have "increased in a manner that threatens to impair the national security or otherwise undermines" the Secretary's monitoring of automobiles and auto parts under Section 232. Once the Secretary receives such a request, the Secretary must:
- Issue a determination on the request within 60 days of receiving the request, in consultation with the US International Trade Commission (USITC) and CBP; and
- Publish a notice in the Federal Register within 14 days after making an affirmative determination to include the requested articles in the scope of the tariffs. Tariffs on these new articles will become effective almost immediately upon publication.
As of today, no further information on this process has been published by Commerce.
Foreign Trade Zones
Finally, the EO provides that on or after the effective date, automobiles or auto parts that are entered into a US foreign trade zone with a "domestic status" designation under 19 CFR 146.43, must be entered with a "privileged foreign status" designation under 19 CFR 146.41.
Possible Pause?
On April 14, 2025, President Trump suggested he was considering a potential temporary exemption of tariffs on automobiles to allow auto producers to adjust their supply chains. It is unclear whether President Trump will pursue a full pause on the automobile tariffs or merely a reduced tariff rate, and as of yet, no further information has been provided.
Reciprocal Tariffs
On April 2, 2025, President Trump announced the application of "baseline tariffs" of 10% on most countries and "reciprocal tariffs" of up to 50% on more than 57 countries. Our client alert on these tariffs is available here. These "reciprocal tariffs" were subsequently paused by the President for a period of 90 days, and now, a "baseline tariff" of 10% is applicable to imports from all countries except for China.
Among the exclusions from these reciprocal tariffs were automobiles and auto parts, as specified by their HTSUS numbers in Annex III to the Reciprocal Tariff EO. This means that today, it is preferable for certain auto parts to be excluded from the 25% Section 232 tariffs. But if these reciprocal tariffs are imposed as originally announced, and if the country-specific reciprocal tariffs are higher than 25%, it may be preferable for auto parts to be included under this Section 232 remedy (through the yet-to-be announced Commerce process for expanding the list of auto parts, described above) rather than to be subject to the higher reciprocal tariffs.
Steel / Aluminum Tariffs
On March 12, 2025, President Trump reimposed tariffs on steel and aluminum products on the basis of the Section 232 investigation begun in the first Trump Administration. Our client alert on these tariffs is available here.
While the main focus of these tariffs is on imports of primary steel and aluminum products, importers in the automotive industry should be aware that certain of these tariffs are also applicable to imports of auto parts. For example, aluminum bumper stampings are deemed a "derivate product" whose aluminum content is subject to these additional tariffs. Similarly, steel bumper stampings and body stampings for tractors suitable for agricultural use are also deemed "derivative products," as well as smaller parts that are included in motor vehicles, including steel roller chains and leaf springs. The steel content of these parts is also subject to a 25% duty.
Importers should note that these steel and aluminum tariffs apply in addition to the tariffs on automobiles and auto parts. This means that auto parts that are covered by both the steel/aluminum tariff EU and the auto parts EO may be subject to additional duties of up to 50%, in addition to any other normal customs duties that might apply.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
