Trump exempts automaker from newly imposed tariffs – for now

The move follows a talk with General Motors, Ford, and Stellantis. The goal of granting an, albeit temporary, exemption is to make sure that US automakers do not suffer financially and to give them time to bring production back to the US.

“At the request of the companies associated with USMCA, the president is giving them an exemption for one month so they’re not at an economic disadvantage,” White House Press Secretary Karoline Leavitt announced at the daily press briefing. “He told them they should get on it, start investing, start moving, shift production here to the United States of America, where they will pay no tariff. That’s the ultimate goal,” she added.

These new barriers within North America could become a major problem for the automotive industry. Several companies have manufacturing facilities in Mexico and import their vehicles or components into the US duty-free. Some OEMs also use Canada as a production location to supply the US market. Volkswagen plans to do just that with a future battery cell factory for electric cars in Ontario.

As several US media outlets have noted, it is unlikely that carmakers can shift production capacities as quickly as Trump wants, as it requires strategic planning, investment, and massive hiring and training.

There is also the fear that it will give an advantage to companies that produce in Europe and Asia and that do not have to ship parts across the Mexican or Canadian borders. “It gives free rein to South Korean and Japanese and European companies,” CNN quotes Ford CEO Jim Farley as saying at a conference last month. “They’re bringing 1.5 million to 2 million vehicles into the US that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.”

Pausing the tariffs for the automotive industry has calmed the industry slightly. Stocks of the above-mentioned manufacturers are gaining again. Nevertheless, they are down compared to last year, given the uncertainty.

Moreover, there are still the additional tariffs on the industry that Trump hinted at when first announcing tariffs for Canada and Mexico in February. He plans to impose tariffs of around 25 per cent on car imports from April, though his statement at the time remained vague. “I probably will tell you that on April 2, but it’ll be in the neighbourhood of 25 per cent,” Trump replied to a corresponding question and added that car factories in other countries like Mexico would be closed. And Leavitt told reporters on Wednesday that the US administration will not consider any exemption for the pending reciprocal tariffs.

Not just US automakers are scrambling. Volkswagen announced that it has activated an emergency plan and is looking to adjust its production in Mexico. VW operates a large plant in Puebla, where it also produces models for the US market. Other US models are manufactured directly in the US at the VW plant in Chattanooga. However, it still uses components from Mexico, which are now also subject to customs duties.

The goal of the emergency plan is to keep as many jobs as possible, as well as “to protect our businesses, supply chains, retailers and consumers,” the German Handelsblatt reports. The German carmaker says it also called on Trump to scrap tariffs, as they also affect “American jobs, economic growth and families across the country.” The tariffs would have a “devastating impact on the automotive industry” and harm American retailers as well as customers there.

On the sidelines of the premiere of the ID. EVERY1 concept car in Düsseldorf, Germany, VW Group CEO Oliver Blume told journalists that the company is seeking dialogue with the US government and is willing to engage in talks.

cnn.com, reuters.com, handelsblatt.com (VW; in German)