As Trump considers auto tariffs pause, parts exemptions could be key for US industry

DETROIT (AP) — President Donald Trump hinted that he might temporarily relieve the auto industry from “permanent” tariffs he previously imposed on the business. The president didn't specify how long the potential pause would be or what it would entail, but the auto sector is awaiting how rules might change on 25% tariffs based on U.S. parts, if duties remain on assembled vehicles.

Experts have said short pauses aren't likely to give carmakers enough of an opportunity to adjust their vast global supply chains, though parts exemptions would certainly bolster the industry amid Trump's trade war whiplash.

Trump told reporters Monday that automakers “need a little bit of time because they’re going to make them here, but they need a little bit of time. So I’m talking about things like that,” referring to relocating production from Canada, Mexico and elsewhere. The news drove global auto stocks up Tuesday.

Matt Blunt, president of the American Automotive Policy Council, which represents domestic auto companies Ford, General Motors and Stellantis, said in a statement: “There is increasing awareness that broad tariffs on parts could undermine our shared goal of building a thriving and growing American auto industry, and that many of these supply chain transitions will take time.”

Trump first announced 25% automotive tariffs late March; the tariffs for completed vehicles took effect on April 3, while the parts tariffs were set to start 30 days later.

“The one-month delay is intended to give the U.S. government time to work out rules to exempt the value of automotive parts that contains U.S.-made materials, which will not be subject to the tariffs,” according to insights from law firm Foley & Lardner, noting a “carveout” for parts certified under regional trade pact, the U.S.-Mexico-Canada Agreement. The Department of Commerce is expected to determine "a system to calculate non-U.S. content” by May 3.

At the same time, automakers are navigating steel and aluminum imports levies of at least 25%; 25% duties on all goods from Canada and Mexico; 10% global tariffs and reciprocal tariffs around the world — paused for 90 days, and both of which automotive is exempt from; and tariffs on China at 145%.

Autos Drive America, which represents foreign automakers, said in a statement that “hitting pause on auto tariffs would be a step in the right direction and would allow automakers to deliver more choices at better prices for consumers."

“Tariffs raise costs across the board — making it more expensive to build cars in America and harder for families to find the vehicle that fits their needs,” the group added. "A pause on auto parts allows automakers to continue production in the U.S. without disruption while a pause on finished vehicles allows automakers to sell vehicles and keep investing in U.S. plants and jobs.”

The United Auto Workers labor union did not respond to a request for comment.

The on-again, off-again tariffs have already wrought havoc for any number of global sectors but especially the auto industry, which relies on a complex network of parts from around the world.

Despite his close proximity to Trump through the so-called Department of Government Efficiency, Tesla CEO Elon Musk has strayed from the president's views on tariffs.

“Important to note that Tesla is NOT unscathed here,” Musk himself posted on his social media platform X. “The tariff impact on Tesla is still significant.”

Tesla's sold in the U.S. have a great deal of parts supplied and vehicles assembled here, and the company claims it has the “most American-made cars.” Varying trims of the Tesla Model Y and 3 are at least 85% domestic content, according to an annual Made in America auto index.

For comparison, Ford builds about 80% of the vehicles it sells in the U.S. domestically.

The American and European car industries are “severely affected by tariffs. On top of the 25% tariff imposed on vehicles, we are impacted by layer upon layer of additional compounding tariffs including those on aluminum, steel, and parts,” Stellantis Chairman John Elkann said in the company’s annual general meeting Tuesday, noting at the same time, the Chinese auto market’s potential for growth this year.

“But it’s not too late if the U.S. and Europe take the necessary urgent actions to promote an orderly transition,” Elkann added. “We are encouraged by what President Trump indicated yesterday on tariffs for the car industry.”

Though Trump says his tariffs are intended to bolster U.S. auto manufacturing, automakers aren't able to reconfigure their sourcing in short periods of time, experts say.

Because of the nature of the business and the length of time it takes to design product and get manufacturing up and running, it could take years to reevaluate sources of supply and establish new assembly operations.

“Flipping upside down a global supply chain that has been in place for decades cannot happen overnight for the auto industry,” Wedbush Securities analyst Dan Ives said in a research note, “and we strongly believe the clear right move would be to focus on finished cars made in the U.S.” versus auto parts.

The tariffs as they currently stand are sure to cost automakers billions of dollars, impact new and used vehicle supply and raise prices for car buyers at dealerships by thousands of dollars.

Already, some auto manufacturers have paused operations in Canada and Mexico and temporarily laid off workers in the U.S.

Some have also attempted to get ahead of the impact of tariffs through appeals to customers. In rare moves, Ford and Jeep-maker Stellantis began offering employee pricing programs for a limited time to reach buyers before what will most likely be steep price hikes. Hyundai and Genesis vowed to hold prices steady for the coming two months.

Car buyers might be better positioned for an extra few weeks, depending on the latest policy change.

A tariff exemption for the auto industry would be welcome relief to automakers and shoppers, said Joseph Yoon, consumer insights analyst at car buying firm Edmunds. But as tariff policy fluctuates, it is difficult to know if exemptions will happen.

“The best course of action for consumers actively shopping for their next car is to seek out any incentive programs or ‘protected pricing’ programs while they are available,” Yoon said. "If your purchase timeline is a little further in the horizon, it may be prudent to await further clarification on tariff details and outcomes of potential exemptions instead of rushing into a purchase you may later regret.”

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Alexa St. John is an Associated Press climate reporter. Follow her on X: @alexa_stjohn. Reach her at ast.john@ap.org.