President Donald Trump signed an executive order Tuesday to ease upcoming tariffs on U.S. automakers, who are facing a new 25% duty on most vehicle parts starting Saturday.
The White House said the proclamation modifies current auto tariff policy, offering manufacturers a rebate on car parts used in U.S.-assembled vehicles. The rebate will be 3.75% of the Manufacturer's Suggested Retail Price (MSRP) for the next year.
For an automobile manufactured in the U.S. with a retail value of $40,000, that means an automaker can import up to $1,500 in parts without being charged a tariff.
"This modified system will better protect national-security by reducing reliance on foreign manufacturing, strengthening U.S. vehicle assembly operations, boosting domestic [research and development], and creating American jobs," the White House said in a statement.
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This order comes after automakers said they need time to ramp up supply chains domestically, and said that tariffs would hold them back from increasing domestic manufacturing. The Trump administration said manufacturers have pledged to invest tariff savings into new plants, more shifts, and more jobs in the U.S.
U.S. automakers welcomed the announcement after brewing tensions between them and the Trump administration.
“Ford welcomes and appreciates these decisions by President Trump, which will help mitigate the impact of tariffs on automakers, suppliers and consumers. We will continue to work closely with the administration in support of the president’s vision for a healthy and growing auto industry in America. Ford sees policies that encourage exports and ensure affordable supply chains to promote more domestic growth as essential," Jim Farley, president and CEO of Ford Motor Company, said.
Commerce Secretary Howard Lutnick said the deal was intended to reward manufacturing companies in the United States.
"President Trump is building an important partnership with both the domestic automakers and our great American workers," Lutnick said in a statement "This deal is a major victory for the President's trade policy by rewarding companies who manufacture domestically, while providing runway to manufacturers who have expressed their commitment to invest in America and expand their domestic manufacturing.”
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Treasury Secretary Scott Bessent has also acknowledged the Trump administration's evolving stance toward auto tariffs.
"President Trump has had meetings with both domestic and foreign auto producers, and he's committed to bringing back auto production to the U.S., so we want to give the automakers a path to do that quickly, efficiently, and create as many jobs as possible," he said on Tuesday.
The U.S., Canada, and Mexico have largely integrated their automaking industries, with numerous American automakers owning plants in all three nations.
Experts say the threat of auto tariffs has caused a lot of uncertainty in the automotive industry. The U.S. has also been subjected to retaliatory tariffs on cars made in America. Canada, for instance, implemented a 25% tariff on autos made in the U.S.
"Forecasting sales in this volatile market is quite challenging, and that is what we have right now, a market being steered by headlines coming from the White House," said Charlie Chesbrough, senior economist at Cox Automotive. "Concerns about potential future vehicle prices due to tariffs led to a surge in March sales, and April began with similar robustness. However, inventory levels have declined substantially over recent weeks, likely pushing vehicle prices higher, so the end of April may not be as strong. With economic concerns rising and consumer confidence declining, the outlook for new auto sales from here is more troubling. If current policy holds, prices in the new-vehicle market will be noticeably higher in the coming months as more costly products replace pre-tariff inventory."
