Effects of New U.S. Tariffs on Imported Vehicles and Components

Automobile manufacturers across the globe, particularly those that export to the US, are facing the heat amid the ongoing trade war after the newly elected US President Donald Trump announced a 25% tariff on imported cars and key auto parts. This move was aimed at reviving the automobile industry in the US and will come into effect from April 3.

At present, the US imposes a tariff of 3.4-4.0 per cent on imported cars from India.

The tariff applies not just to the fully assembled cars, but also to vehicle components like engines, powertrain systems, transmissions, and even to electrical assemblies.

Some countries like Canada, Japan, and Mexico will see themselves at a crossroads with the latest move.

As per the White House, the move is expected to yield around $100 billion annually. Though India’s exports of fully assembled cars to the US remain low, it will have a significant impact on the auto component industry as it emerged as a one of the key exporters for American car manufacturers.

Countries like Canada, Japan, and Mexico will see themselves at a crossroads with the latest move.

In 2023, India saw exports worth $1.5 billion in auto parts to the US, as reported.

The hike in tariff may lead to the input cost of car manufacturers in the US, which in turn could reduce the demand for Indian parts. Indian suppliers need to bear the additional cost or look for alternate options, like redirecting exports to other parts of the world.

The automobile industry in India fell 1.4 percent on the Nifty today amid the imposition of a tariff. Tata Motors’ Jaguar Land Rover (JLR) needs to make changes to its pricing models or consider relocating production to another country to overcome pressure margins as JLR majorly exports vehicles from the UK and Europe to the US.

Key Points:

• Tax imposition will begin from April 3 and applies to all finished cars not assembled in India.
• Will impact countries like Japan, Canada, Mexico, South Korea, Germany, Italy, and the UK.
• An increased tax hike on auto parts will be implemented before May 3.