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What is Trump's new 25% tariff on US auto imports?

Donald Trump, who has been threatening new tariffs for weeks on imported vehicles, followed through with his threats on Wednesday. He said that a 25% tax would be imposed on cars not made in the U.S. next week.

On Wednesday, the administration was still releasing details of the plan that will disrupt the auto industry and its supply chains. What is known?

All non-US-assembled vehicles are subject to a 25% duty

Trump will add a 25% tariff to previous duties on imported finished vehicles, starting April 3 at 12:01 am EDT (0401 GMT). The U.S. base tariff rate on automotive imports is 2.5 percent.

Canada, Mexico, and South Korea, all countries with free-trade agreements, will face the duties. The European Union, Japan, and German and Italian automakers, along with Britain, will also be hit hard.

Experts in trade and automotive say that unilateral tariffs will violate the U.S. - Mexico - Canada Agreement on Trade and the U.S. - South Korea Free Trade Agreement.

DUTIES ARE DELAYED BY 25%

Trump's announcement also states that the 25% tariffs will be applied to imports of major auto parts. These include "engines and parts for engines, transmissions and parts for powertrains, and electrical components." The Federal Register will announce a date for the start of parts duties, which could be up to one month later. But no later than May 3,

The notice will also include the specific tariff codes of components that are subject to duties. These codes were not disclosed in Trump's announcement.

USMCA EXEMPTION PARTIALE

The plan offers a partial exemption of tariffs on vehicles and parts that meet the USMCA rules of origin. However, this is only applicable to the value of the U.S. produced content. A truck made in Mexico that contains 45% U.S. material would still be subject to a 25% tax on the value of 55%.

Auto parts compliant with USMCA rules would be taxed on the non-U.S. component.

It will be difficult to determine these levels of content. USMCA compliant auto parts are duty-free until the Commerce Department and U.S. Customs and Border Protection agency decide on a method to apply tariffs for their non-U.S. contents. The process was not given a deadline.

LEGAL RATIONALE

Trump's new tariffs were based on a national security investigation conducted in 2019 into auto imports during his first term as president under Section 232 of Trade Expansion Act of 1964. Trump used the Cold War trade law in 2018 to impose 25% tariffs for steel and aluminum imports.

The Commerce Department concluded that the increasing market share of imported vehicles was negatively affecting U.S. National Security by eroding U.S. Industrial Base and the ability for domestic automakers develop advanced technologies to be used in military applications.

Trump chose to not impose tariffs at that time, instead opting for trade negotiations with trading partners in order to resolve these concerns.

On Wednesday, he said that the talks had failed and that the USMCA and KORUS revisions had not improved U.S. positions in the automotive trade. Reporting by David Lawder, Andrea Shalal and Lincoln Feast.

(source: Reuters)