Understanding the New Tariffs and their Potential Impact on Auto Repairers
On the same day he took the oath of office, President Trump signed a package of Executive Orders, which he collectively named “America First Trade Policy,” These orders instructed federal agencies to examine the causes for the United States’ trade deficit, other countries’ compliance with trade agreements, unfair trade practices undertaken by other countries, and policy proposals to address the harms inflicted on American workers and businesses. With the announcements of 25% tariffs on automobile and automobile parts imports, and the across-the-board tariffs announced yesterday, the reports’ findings and recommendations are materializing in tangible policy changes that could impact how auto repairers operate their businesses.
On March 26, the Trump Administration announced a 25 percent tariff on imports of automobiles and certain automotive parts. The tariff went into effect for fully assembled vehicles on April 3. The tariff on auto parts will go into effect on May 3. The original order only applied the tariff on auto parts that fit the following categories: engines and engine parts; transmissions and powertrains; and electrical components. Since then, that list has been updated to include 150 categories, including bumper components, motor vehicle hinges, windshield wipers, tires, lubricants, and more.
A few weeks ago, President Trump announced a 25% tariff on goods from Mexico and Canada. He followed that announcement by issuing an exemption – expiring April 2 – for autos and auto parts. Another exemption was later issued for imports that comply with the US-Mexico-Canada Agreement on trade (USMCA). While the automotive exemptions were not extended, Canada and Mexico have received an exemption on USCMA-compliant automotive products from the new 25 percent tariff on automotive imports levied on all other countries.
The tariffs announced on April 2 are expansive, but exclude vehicles and automotive parts so as not to “double dip” with the auto-specific tariffs described above. The policy sets a minimum ten percent tariff on exports from all countries, with the exception of USMCA-compliant products from Canada and Mexico. Certain countries that the Trump Administration has determined impose unfair trade policies will be subject to even higher tariffs. For example, the European Union will be subject to 20 percent tariffs, Thailand will be subject to a 36 percent rate, and China will be subject to a 34 percent levy. Providing an example for clarity, a tire produced in Thailand will only be subject to a 25 percent import tax. A tee shirt made in Thailand will be subject to the 36 percent rate.
China faces a more unique situation. In January, President Trump imposed a 20 percent tariff on all goods from China. That means that a windshield wiper manufactured in China will face a 45 percent import tariff starting on May 3. A microwave made in China will be subject to a 54 percent rate starting on April 9. Meanwhile, a tail light produced entirely in Mexico will not face any tariff. President Trump reserves the right to expand or pull back these tariffs when he deems appropriate, as he has already done in some cases.
These new tariffs will force auto parts retailers, distributors, and even domestic parts manufacturers to make tough choices. Some might choose to absorb the tariff costs to keep the price unchanged for their customers. This course of action is unlikely. More likely, they will pass the cost on to their customers. They could also opt to source the parts from different producers who are subject to lower tariffs, or even no tariffs. In all likelihood, this decision would still lead to higher prices for customers because these new sources no longer have to compete with cheaper alternatives. At the same time, retaliatory tariffs imposed by China, Canada, and Mexico on American exports could reduce American parts manufacturers’ access to those countries’ markets, leading domestic manufacturers to raise prices further. Customers are also likely to encounter smaller parts inventories due to fewer parts available in the market and higher prices for those parts.
Independent auto repairers can reasonably expect obtaining aftermarket parts to become more expensive and more difficult. That being said, other factors might mitigate these challenges. For example, fewer Chinese auto parts in the United States could also lead to higher levels of confidence in overall quality of parts available in the aftermarket. Additionally, international economic policy will continue to evolve, and the Trump administration could decide to rescind certain tariffs, as seen when, just two days after announcing 25 percent tariffs on Mexico and Canada, the White House announced a one-month delay in the tariff on Mexico because their government demonstrated a willingness to compromise and align its policies closer to those of the Administration.
This constantly evolving tariff environment makes long-term planning difficult. In the meantime, repairers can prepare for the short-term by making adjustments to their parts inventories. They can also get updates on this issue and other public policy areas by signing up for ASA’s legislative and regulatory newsletter, Repair Policy Scan Tool, by clicking here.