President Trump signed an executive order on Tuesday to return tariffs on carmakers and removed taxes that Ford, General Motors and others complained that they would backfire US manufacturing by raising production costs and narrowing down profits.
The change will change Trump's tariffs, so according to the order, car manufacturers who pay a 25% tariff on car imports are not subject to other taxes, such as other taxes, or certain imports from Canada and Mexico. However, the rules do not appear to protect car manufacturers from steel and aluminum duties that suppliers pay and pass.
Automakers can also qualify for tariff relief at a percentage of the cost of imported components, but these benefits will be phased out over the next two years.
Speaking before departing the White House on a trip to Michigan on Tuesday, Trump said the administration wanted to help carmakers “enjoy this small transition in the short term.”
“If they couldn't get the parts, we didn't want to punish them,” he said.
The decision to cut the tariff coverage is the latest indication that the Trump administration's decision to strictly collect almost all trading partners has created challenges and economic uncertainty for American businesses. However, even with concessions announced Tuesday, the management policy adds thousands of dollars to car prices, putting the financial health of the car manufacturer and its suppliers at risk, analysts said.
Trump signed an executive order with Air Force 1 when he flew to Michigan, home to America's largest automaker, and flew to Michigan to celebrate his 100-day inauguration.
Automakers welcome the easing of rates, saying it will raise car prices, lower sales and threaten economic viability. However, the measures will leave a 25% tariff on imported vehicles that came into effect on April 3, as well as a duties on auto parts that will be effective on Saturday. This will increase the prices of new and used cars by thousands of dollars, and increase the costs of repairs and insurance premiums.
On Tuesday, General Motors abandoned previous forecasts of solid profit growth this year as a result of the uncertainty created by Trump's trade policy. The automaker, which sells more vehicles than any other company in the US, said profit forecasts are “predictions.”
“Previous guidance cannot be relied on,” GM's chief financial officer Paul Jacobson said during a conference call with reporters.
The automaker also postponed a conference call with financial analysts, discussing the results of the first quarter, citing expectations of changes to the Trump administration's tariff policy. The company will call on Thursday.
The move comes weeks after managers were exempt from penalizing Chinese tariffs for concerns from companies like Apple that import taxes would cause prices for US consumers.
Commerce secretary Howard Lutnick said on Tuesday the change was attributed to direct conversations with domestic automakers, with the administration having “constant contact” with businesses and analysed businesses and accurately grasped their policies.
“Donald Trump and his presidency are going to bring back domestic car manufacturing,” Rutnick said.
In one order signed Tuesday, the president said the change would help reduce the industry's reliance on foreign manufacturing and encourage businesses to expand domestic production.
For one year, managers will provide car manufacturers with an exemption from auto parts duties of 15% of the proposed retail price of the manufacturers of assembled cars in the United States. This will be reduced by 10% in the second year from May 1, 2026 and eliminated in the third year.
Automakers assemble cars in the US can apply for this so-called offset by submitting documents to the government regarding expected imports and duties costs.
In his second executive order, Trump detailed a new rule that would exempt businesses paying certain tariffs from paying others. The president said that if a single import is subject to multiple types of tariffs, “all of these tariffs should not have a cumulative effect (or “stacks” above each other).
The order said that carmakers who pay a 25% tariff for bringing in cars and car parts would not be subject to tariffs placed on steel and aluminum or imports from Canada and Mexico.
Products subject to tariffs on imports from Canada and Mexico are no longer subject to tariffs on steel and aluminum, the order said. However, it states that goods that are charged with tariffs on steel content will be charged with tariffs on any aluminum content.
Other obligations will be charged on all items, including tariffs that Trump has imposed on China and duties imposed for trade violations such as dumping and unfair subsidies.
The latest rules also leave exemptions for parts imported from Canada and Mexico that comply with treaties Trump negotiated during his first term. Both countries are major suppliers of the US automotive industry.
Renee Lalacca, the leader of the US automotive industry at consulting firm KPMG, said the exemption would buy automakers for a while. “It gives them a little time to plan what their strategy is,” he said.
However, automakers and suppliers say three years isn't enough time to restructure their manufacturing operations. Even so, in the US, you can't make many components cheaply, and the prices are higher.
Even vehicles manufactured in the US usually use far more imported parts than exemptions cover. Most cars also contain Japanese, Korean or Chinese components that are subject to customs duties.
“Today's relief won't fix the long-term challenges,” Bernstein analyst said in a memo Tuesday. “U.S. car prices are just as high as economic momentum fades.”
Nonetheless, automotive executives expressed their gratitude for Trump at least addressing some of their concerns. In a statement Monday, GM CEO Mary T. Bala said the company appreciated “productive conversations between the president and his administration.”
“The president's leadership helps businesses like GM level the playing field, allowing them to invest more in the US economy,” she said.
“Stellantis appreciates the tariff relief measures decided by President Trump,” John Elkann, chairman of the company that owns Dodge, Jeep, Ram and Chrysler, said in a statement. “We are further evaluating the impact of tariff policy on North American businesses, but we look forward to continuing cooperation with the US administration to strengthen the competitive American automotive industry and stimulate exports.”
The executives also suggested that they hope that ongoing consultations with the administrators will lead to further concessions. “We will continue to work closely with the administration to support the President's vision for the healthy and growing automotive industry in America,” Ford CEO Jim Farley said in a statement.
The exemption appears to have been partially designed by Rutnick, who has played a role in securing favorable exemptions for several industries over the past few months. In a statement Monday, he called the deal “a big victory in the president's trade policy.”
The arrangement “rewards domestically manufacturing companies whilst providing runways to manufacturers who have expressed their commitment to expanding their investment in the US and domestic manufacturing,” Ludnik said.
Veronique De Rugy, a senior researcher at Mercatus Center, called the move a “shakedown” by the Trump administration, saying the administration had suffered from the automaker's pain and then demanded an investment promise from them.
“Trump tariffs have created a crisis for automakers, and now the administration is offering partial relief not from economic wisdom but as a reward for playing the ball,” she said.
Neal E. Boudette contributed the report.
