Trump Reduces Auto Tariffs with 85% Rule as Buyers Prepare for Price Shock | Carscoops

      Tariffs will no longer accumulate, and the government will provide a minor rebate on tariffs.

      8 hours ago

      by Stephen Rivers

      Trump's new executive order stops the stacking of tariffs and offers relief through rebates to automakers.

      The existing 25% tariffs remain unchanged, while new rebates will help soften the impact of incoming auto parts fees.

      Automakers will get a 3.75% tariff rebate for the first year, followed by a 2.5% rebate in the subsequent year.

      Update: The White House has issued an official statement with further details, the most notable being that any vehicle manufactured in the USA with at least 85% U.S. or USMCA content will be completely exempt from tariffs.

      The U.S. auto industry is set to face a 25% tariff on cars and parts, but there’s an unexpected twist. In a bid to alleviate some challenges for automakers, President Trump is easing some of the burdens these companies will encounter. A new executive order will provide rebates for automakers who pay tariffs and will prevent tariffs from stacking.

      Additionally, the 25% tariff on imported vehicles will remain unchanged. The other 25% tariff on auto parts will still take effect on May 3. However, the new order aims to make compliance easier for automakers by stopping multiple tariffs from accumulating, a significant concern for the industry.

      The order introduces a rebate program where automakers can receive up to a 3.75% reimbursement on auto parts tariffs in the first year, decreasing to 2.5% in the second year, after which it will be completely phased out. The objective is to provide manufacturers with time to relocate more production to the United States.

      The 85% Rule

      Under this executive order, if a vehicle is produced in the U.S. containing at least 85% U.S. or USMCA content, the automaker will not incur any tariffs on that vehicle’s production in the first year. For example, a U.S.-assembled vehicle valued at $50,000 can include up to $7,500 worth of imported parts without attracting a tariff.

      If a vehicle comprises 50% U.S. or USMCA parts and 50% imported parts, the automaker will not be liable for tariffs on the entire imported portion. Instead, tariffs will only apply to 35% of the vehicle's value in the first year, reducing the overall financial burden.

      “President Trump is forging an important partnership with domestic automakers and American workers,” Commerce Secretary Howard Lutnick stated to The Wall Street Journal. “This agreement will be a significant achievement for the president's trade policy by rewarding companies that already manufacture domestically while providing a path for manufacturers that are committed to investing in America and increasing domestic production.”

      Industry Responses

      At present, the major three automakers are expressing approval for the initiative. “Ford welcomes and appreciates these decisions by President Trump, which will help lessen the impact of tariffs on automakers, suppliers, and consumers,” stated Ford CEO Jim Farley. “We will continue to collaborate closely with the administration in support of the president's vision for a robust auto industry in America. Ford views policies that promote exports and ensure affordable supply chains as essential for fostering domestic growth.”

      Stellantis Chair John Elkann remarked to CNBC that “Stellantis appreciates the tariff relief measures implemented by President Trump. While we continue to evaluate the effects of the tariff policies on our North American operations, we look forward to our ongoing collaboration with the U.S. Administration to enhance a competitive American auto industry and boost exports.”

      Mary Barra of GM also commented that the order assists in “leveling the playing field for companies like GM.” All of this follows increasing pressure on Trump from dealers, automakers, and others.

      This comes after rising pressures from dealers, automakers, and industry groups, who cautioned that escalating tariffs could lead to serious financial repercussions across the sector.