Trump offers tariff relief to carmakers in bid to boost domestic manufacturing

In a major reprieve to automakers manufacturing cars in the U.S., the Trump administration will reduce the impact automakers would have earlier faced because of the previously announced tariffs, the commerce secretary Howard Lutnick said in a statement. 

The change in policy, first reported by the Wall Street Journal, will see the administration alleviating some of the duties levied on steel and aluminium—along with foreign parts—for those carmakers who are already paying automotive-related tariffs, averting the carmakers from paying multiple tariffs. The reprieve will also be retroactive, implying that the tariffs already paid by carmakers till the implementation of the policy will be reimbursed by the federal government. 

For foreign parts, the automakers will be eligible for tariffs that are equivalent to 3.75% of the value of a U.S.-made car in the first year of the reimbursement, followed by 2.5% in the second year, before being phased out altogether, according to the Wall Street Journal, citing people familiar with the contours of the policy.

Trump had earlier made the decision of imposing a 25% tariff on all foreign-made auto parts, a move that was vociferously opposed by carmakers. A legion of carmakers—including General Motors, Toyota, and Hyundai—exhorted the government, via a letter, to roll back the decision. "Tariffs on auto parts will scramble the global automotive supply chain and set off a domino effect that will lead to higher auto prices for consumers, lower sales at dealerships and will make servicing and repairing vehicles both more expensive and less predictable," the carmakers said.

"President Trump is building an important partnership with both the domestic automakers and our great American workers," Lutnick said, adding that the deal will be "a major victory for the president’s trade policy by rewarding companies who are already manufacturing domestically, while providing a runway to manufacturers who have expressed their commitment in investing in America and expanding domestic manufacturing."

The reprieve and Lutnick's comments come close on the heels of President Trump visiting Michigan for a rally outside Detroit—the hub of automobile manufacturing in the U.S. — to commemorate 100 days since he took office for the second time. 

Wall Street Journal

"Ford welcomes and appreciates these decisions by President Trump, which will help mitigate the impact of tariffs on automakers, suppliers and consumers," Jim Farley, CEO, Ford Motor Company, said in a statement. "We will continue to work closely with the administration in support of the president’s vision for a healthy and growing auto industry in America. Ford sees policies that encourage exports and ensure affordable supply chains to promote more domestic growth as essential."

The current tariff imposition would, according to analysts, have bumped up a car's price between 10-12% in the U.S., although Trump had publicly warned carmakers from passing on the additional costs from the tariffs to the U.S. Earlier, the 25% tariff on finished cars not made on U.S. soil was implemented. 

This development is the latest in a series of rollbacks on President Trump's otherwise unrelenting stance on trade protectionism. Not only has he given a 90-day reprieve to most trade partners of the U.S., he has also softened on China from his earlier position of imposing 145% tariffs on all Chinese goods.