On 26 March 2025, President Trump announced 25% additional tariffs on imports of automobiles and automobile parts to protect the national security of the United States (US). The 25% ad valorem tariff is in addition to any other duties, fees, exactions and charges applicable to the automobiles and automobile parts. The tariffs are declared under several authorities, including Section 301 of title 3, United States Code, section 604 of the Trade Act of 1974, and Section 232 of the Trade Expansion Act of 1962. (See the White House Proclamation, "Adjusting Imports of Automobiles and Automobile Parts Into the United States," and accompanying Fact Sheet.)

A few highlights from the Proclamation

• Forthcoming in the Federal Register:
• More details on the list of covered automobiles and automobile parts subject to the new tariffs will be forthcoming in the Federal Register. A process will be set up to allow for domestic producers or industry groups to request expansion of the list.
• More details on how to apply the tariff exclusively to the value of the non-US content for US-Mexico-Canada (USMCA) qualified automobile parts.
• Calculation of auto tariffs:
• USMCA-eligible products can seek application of tariffs exclusively on non-US content (total value of the automobile — value of the US content).
• "US content" is defined in the Proclamation/EO as the "value of the automobile attributable to parts wholly obtained, produced entirely, or substantially transformed in the United States."
• Customs and Border Protection (CBP) enforcement and oversight:
• CBP will scrutinize cases in which companies overstate US content.
• In case of noncompliance, a 25% tariff will be imposed on the full value of the auto as follows:
• Retroactively (from 3 April 2025, to the date of the inaccurate overstatement)
• Prospectively (from the date of the inaccurate overstatement to the date the importer corrects the overstatement, as verified by CBP)

Similar to recent tariffs, certain duty-mitigation options have been restricted:

• Drawback — Refunds are not available on duties paid for covered autos or auto parts.
• Foreign Trade Zone — Covered automobiles and automobile parts must be admitted as "privileged foreign status" as defined in 19 CFR 146.41 and will be subject upon entry for consumption to any ad valorem rates of duty related to the classification under the applicable Harmonized Tariff Schedule of the United States (HTSUS) subheading.

Actions for businesses to consider

Companies that import automobiles and automobiles parts should immediately identify the potential impact of these measures and explore potential mitigation strategies. For example:

• Keep up with the latest news and developments in trade policies globally and stay adaptable to quickly respond to changes in trade regulations and tariff rates.
• Monitor updates from the Federal Register for further instructions on the classification codes of covered autos and auto parts subject to the punitive tariffs and application of tariffs exclusively on non-US content.
• Review USMCA qualification to seek approvals to apply tariffs exclusively on non-US content for both autos and auto parts.
• Review rules of origin to distinguish between US and non-US content.
• Consider valuation planning, such as warranty push down and bifurcating product and non-product costs (e.g., exclusive distribution rights) and other country-specific planning, such as first sale for export in the US, to mitigate the increase in duty.
• Consider increase in US content of imported finished goods, perhaps in conjunction with other US manufacturing incentives.
• Review contracts with suppliers and customers to clarify contractual liability for duties and taxes.
• Consider renegotiating supplier and customer pricing agreements and/or cost-splitting arrangements.
• Develop compliance processes and procedures that demonstrate reasonable care in the face of increased customs enforcement and scrutiny in the US.
• Review Free Trade Zone operations and admission status of covered auto parts under the new requirements into the US.
• Review US-continuous-import-bond sufficiency

Additionally, the imposition of the new tariffs, will almost certainly affect transfer prices for US distributors that purchase from related parties and identify that their products are now subject to the punitive duties. Along with considering the mitigating duty impact while aligning the income tax and customs approaches, affected parties should also review the mechanics for reporting any transfer pricing adjustments to US Customs. This process may be particularly complex when duties are present for only part of the year. US Customs has specific rules for reporting adjustments to prices made after importation, including rules for transfer pricing adjustments. These rules require the importer to take specific actions before importing goods for which prices may be adjusted, including adding customs-specific language to transfer pricing policies. With proper planning, refunds may be obtained on duties paid if transfer prices are reduced.