President Trump signed a pair of executive orders on Tuesday that backed down some tariffs on automakers, removing taxes complained by Ford, General Motors and others, which would backfire by raising production costs and raising profits.
These changes will change Mr. Trump's tariffs so that automakers that pay 25% of their tariffs on automatic imports are not subject to other taxes, such as steel and aluminum, or certain imports from Canada and Mexico. However, these rules do not seem to protect automakers from tariffs on steel and aluminum paid and passed by their suppliers.
Automakers will also be eligible for a portion of their imported components costs, although these benefits will be phased out over the next two years.
Trump showed automakers “some flexibility” when he was in Michigan on Tuesday night, but he hoped they made their components in the United States.
“If they don't do that, we give them a little time and then we'll kill them.”
The decision to reduce the scope of tariffs is the latest signal of the Trump administration’s decision to impose severe taxes on nearly all trading partners, posing challenges and economic uncertainty for U.S. companies. But even if the offer was announced on Tuesday, administrative policies would add thousands of dollars to car prices and harm the financial situation of automakers and their suppliers.
Mr. Trump's senior order to fly to Michigan, the home of the largest U.S. automaker, signed the Air Force One order to commemorate his 100-day speech.
Automakers welcome any relaxation of tariffs, which they say will raise car prices, causing sales to fall and threaten their financial viability. However, these steps will impose a 25% tariff on imported vehicles that will take effect on April 3 and a tariff on auto parts that will take effect on Saturday. This will still increase the price of new and used cars by thousands of dollars and increase the cost of repairs and insurance premiums.
GM gave up forecasts for steady profit growth this year on Tuesday due to uncertainty caused by Mr. Trump’s trade policy. The automaker sells more vehicles in the U.S. than any other company, and he said any profit forecast is “guess.”
“Previous guidance cannot be relied on,” General Motors Chief Financial Officer Paul Jacobson said in a conference call with reporters.
The automaker also delayed a call with financial analysts to discuss its first-quarter results, citing expectations for changes in tariff policies by the Trump administration. The company will now hold a phone call on Thursday.
The move comes weeks after the government exempted smartphones, computers, semiconductors and other electronics, it punished China for fear of tariffs on companies such as Apple, that import taxes would cause prices for U.S. consumers to soar.
Commerce Secretary Howard Lutnick said on Tuesday the changes stemmed from direct conversations with domestic automakers and that the government has been “continuously in touch” with companies to analyze their businesses and ensure their policies are completely correct.
“Donald Trump and his presidency will be brought back to the domestic auto manufacturing industry,” Lutnik said.
The Trump administration has not yet acknowledged that tariffs will harm U.S. automakers. But on Tuesday, it seems that the acknowledgement of the removal of the tariffs would help them. The president said in a order signed on Tuesday that the changes will help reduce the industry's reliance on foreign manufacturing and encourage companies to expand their domestic production.
Over the past year, the government will provide automakers with exemptions from their auto parts tariffs, accounting for 15% of the manufacturer's recommended retail price for cars. This will drop to 10% in the second year and then be eliminated in the third year.
Automakers assembled cars in the U.S. will be able to apply for so-called offsets by submitting documents to the government regarding their estimated import and tariff costs.
Mr. Trump detailed the new rules in his second execution order, which would exempt companies that pay other taxes to certain tariffs. The president said that when one import imposes multiple tariffs, the tariffs should not be “each” because the tariffs incurred are higher than necessary.
The order said automakers paid a 25% tax rate to bring in cars and auto parts, which would not be subject to Mr. Trump's tariffs on steel and aluminum or imports from Canada and Mexico.
The order says products subject to tariffs on imports from Canada and Mexico will no longer be subject to tariffs on steel and aluminum. But it said goods that charge tariffs on steel content will still be tariffed on any aluminum content.
All projects will still be charged with other duties, including tariffs imposed by Mr. Trump on China, as well as trade violations such as dumping and unfair subsidies.
The latest rules also allow exemptions for parts imported from Canada and Mexico that are in line with the treaty Trump negotiated during his first term. Both countries are major suppliers to the U.S. automotive industry.
Lenny Larocca, a U.S. auto industry leader in KPMG, said the waiver will be purchased for a while. “It gives them some time to plan their strategy,” he said.
But automakers and suppliers say there is not enough time for two years to reorganize their manufacturing operations. Even if they do, they won't be able to make many parts as cheaply as elsewhere, which will result in higher prices.
Even cars produced in the United States usually use much more parts than the exemption covers. Most cars also contain components from Japan, South Korea or China, which will be affected by tariffs.
“Today's relief doesn't solve the long-term challenges,” analysts at Bernstein said in a report Tuesday. “As the economic momentum fades, U.S. car prices are rising.”
Nonetheless, auto executives expressed gratitude to Trump for at least addressing some of their concerns. Mary T., CEO of GM.
“The president’s leadership is helping the competitive environment for companies like General Motors and allowing us to invest more in the U.S. economy,” she said.
“Stellantis thanks President Trump for the decision of tariff remedies,” said John Elkann, chairman of the company that owns Dodge, Jeep, Ram and Chrysler, in a statement. “While we further evaluate the impact of tariff policies on North American operations, we look forward to continuing to work with the U.S. government to enhance the competitive U.S. auto industry and stimulate exports.”
Executives also hinted that they hope that continuing talks with government officials would lead to further concessions. “We will continue to work closely with the administration to support the president's vision for a healthy and growing automotive industry in the United States,” Ford CEO Jim Farley said in a statement.
The waiver appears to be designed in part by Mr. Lutnik, who has played a role in profit waiver for certain industries in recent months. In a statement Monday, he said the deal “has a significant victory for the president’s trade policy” and said it would “provide a runway to manufacturers expressing their commitment to U.S. investment.”
Veronique de Rugy, a senior fellow at the Mercatus Center, called the move a “shakedown” of the Trump administration, saying it had put pain on automakers and then demanded their commitment to investment.
“Trump's tariffs have caused a crisis for automakers and now the administration is providing partial relief,” she said.
Neal E. Boudette and Tony Romm Contribution report.
