Carmakers to Get Rebate on Parts Tariffs; Steel/Aluminum Won't Stack on 25%

The proclamation sets no limits on how the MSRP is set, but does set a limit on the 3.75% of MSRP credit -- it can't exceed the Section 232 auto tariff liability for imported parts -- so it can't be used to offset tariff liability for completed vehicles, or for other tariff liability, such as the 20% fentanyl tariffs on Chinese goods.

Only original equipment manufacturers will be able to submit data on how much Section 232 parts liability they expect to incur, but they likely will offer the credits to their suppliers -- and maybe even their suppliers' suppliers -- since they may not directly import enough tariffable parts to reach the cap.

The original Section 232 action said tariffs on imported parts that don't qualify for USMCA would start on May 3, and that tariffs on USMCA parts would follow later, once there was a process to determine how much U.S. content was in those goods.

While the proclamation is silent on whether tariffs on auto parts qualifying under USMCA are coming, a top Commerce Department official said on a press call that the duty-free status for USMCA parts would remain, and a fact sheet from the White House also implied that the credit was set based on models that have the highest North American content, not solely American content. That fact sheet said: "if a manufacturer builds a car in the U.S. that has 85% U.S. or USMCA content, the manufacturer effectively will not owe tariffs on that vehicle’s production for the first year."

For vehicles produced in the U.S. from May 1, 2026, through April 30, 2027, automakers may claim 2% of the collective MSRP of U.S.-assembled vehicles, assuming they and their suppliers have that much Section 232 tariff liability.

Imported auto parts will only be subject to Section 232's 25% rate and the most-favored nation (MFN) duty, not 25% tariffs on steel or aluminum derivatives. In the case of parts from Mexico or Canada that do not qualify for USMCA duty-free entry, those parts won't be subject to either steel or aluminum tariffs nor the 25% fentanyl/migration tariffs.

The trade association that represents Ford, GM and Stellantis said its members "appreciate the administration’s clarification that tariffs will not be layered on top of the existing Section 232 tariffs on autos and auto parts. Applying multiple tariffs to the same product or part was a significant concern for American Automakers, and we are glad to see this addressed. We also welcome the import adjustment offset and the recognition of the significant economic contributions of U.S.-based automakers.

However, for imported Chinese auto parts, the auto tariff, the 20% fentanyl tariffs and the Section 301 tariffs will apply.

The White House also issued an executive order late in the afternoon on April 29 that also said that steel and aluminum derivatives that are imported from Canada or Mexico are not subject to the 25% border tariffs. That change is retroactive to March 4, the order said. That order said new HTS codes needed to make the change should be completed by May 16.

Trump wrote, "I have now determined that, to the extent these tariffs apply to the same article, these tariffs should not all have a cumulative effect (or 'stack' on top of one another) because the rate of duty resulting from such stacking exceeds what is necessary to achieve the intended policy goals."

For the credit against imported auto parts for U.S. production, automakers have 30 days to produce projections about what vehicles they expect to build through April 30 next year, including where the vehicles will be assembled, as well as documentation on the projected tariff costs for imported automobile parts for those U.S.-assembled models, broken down by direct costs to the car company and costs its suppliers will incur.

This documentation will also need to identify importers of record, including their IOR numbers, eligible to use the offset credit, and the amount of the offset allotted to each. A senior officer must sign, "attesting under penalty of perjury that the information submitted ... is true, complete, and accurate to the best of the manufacturer’s knowledge, and that the manufacturer has conducted reasonable due diligence to verify the accuracy of the assertions and facts contained in its submissions."

Once the Commerce Department verifies the submission is complete and accurate, it will notify CBP, and send the information CBP needs to administer the credit.

"CBP shall confer the approved offset amount to the approved importer(s) of record using processes and mechanisms consistent with CBP’s operational framework and tariff administration procedures, including offset against current tariff obligations due at the time of entry, or other lawful methods," the proclamation says.

A senior Commerce official told International Trade Today and other reporters on a press call that the offset was a result of "detailed conversations" with domestic automakers. "This is not complex, [and is] pretty easy to execute," he said.

"The automakers said it will take some time to ramp up and produce their full supply chain domestically and that seemed like a very reasonable and practical point of view," the official said.

"Even the small amount of tariffs they would have [for domestic assembly], that would hold them back from hiring at the scale the president wants to achieve," he said the automakers told him. And so, the president understood, this change is the way to get the expansions he wants. "This is why you have a businessman in the White House -- he knows how to maximize the outcomes for America," the official said.

The trade group representing Detroit's Big Three didn't say the offset would clear the way to increase domestic production. "We will review the details of the Executive Order closely to assess how effectively it will mitigate the impact of tariffs on American Automakers, our domestic supply chains and ultimately American consumers," the American Automotive Policy Council said.

Thompson Hine's Dan Ujczo, a senior trade partner with close ties with the domestic automakers, said the way this was constructed will give OEMs more leverage over their suppliers. "There's already a power imbalance between the OEMS and the suppliers," he said.

Tesla, Ford and Stellantis would be most advantaged in this system, as Tesla only sells U.S.-built cars, and more than 75% of Ford vehicles and two-thirds of Stellantis vehicles sold in the U.S. are assembled in the U.S., and these carmakers also use a lot of North American parts. By number of models, however, GM, Toyota/Lexus and Honda/Acura have the most U.S. assembly.

Individual models from other carmakers will be advantaged because of their high North American content, including VW's electric crossover.

BMW and Mercedes will be most disadvantaged, because they import many engines from Germany for their U.S. assembled cars.

"You're going to grow domestic production of cars, you're going to grow domestic supply chains of auto parts, and you're going to create tens of thousands of jobs," the senior Commerce official said. "Basically, the agreement with the automakers, this discussion, this allows them to be fully committed without worry."

If this structure continues, however, it could drive auto parts jobs to Mexico, as long as those parts can qualify for USMCA rules of origin.

Ujczo said, "They just raised the rules of origin to 85%!" He said no company is at 85% North American content, but he said if you include R&D and engineering costs, you could be there. The USMCA auto rules of origin are 75%.

The Commerce official predicted "you're going to see massive new plants built," and predicted there would be more than $100 billion in investment in the sector in the U.S.

Ujczo said construction projects, whether factories or otherwise, are on hold, because contractors don't know what they'll be paying for steel girders, copper pipes or lumber.

Because of the cost of imported parts, and the expectation that even USMCA parts would eventually be subject to some tariffs, one auto industry analyst recently projected that U.S.-assembled vehicles would cost dealers 5% to 7% more, and that North American and European carmakers would have profits decline by 2% to 4%.

Overall, between both U.S. assembled and imported cars, S&P projected the weighted average of MSRP will be $50,300 in 2025, up from $45,914 last year, a 9.5% increase. That level of price increase would cause a drop in sales of more than 1.5 million vehicles in 2025, the company projected (see 2504220039).

The senior Commerce official said that as a result of this break, for U.S.-assembled cars, "prices will not go up."

"This gives them a beneficial position to grow their market share ... and that's why this will work," he added.

Ujczo said it would be a huge mistake for carmakers to hike the prices of U.S.-built cars to even out their higher costs for cars imported from Mexico, Canada, Japan or South Korea.

"Because what's giveth can be easily taketh away," he said.