Trump plans 25% tariff on automobiles, parts

CHENNAI: Stepping up his trade offensive, US President Donald Trump announced plans to impose a 25% tariff on imported cars and some components starting next week, a move that sets the stage for a fresh round of retaliation by other countries, including the EU and Canada, which have slammed the move.

Since the tariff will be applied uniformly on imports from all countries, the impact will be felt more by American consumers, who could face higher prices of up to $6,000 a vehicle, which in turn may slow down demand and impact companies overseas.

While Indian automakers will largely escape unscathed immediately, given the minuscule exposure of the fuel-efficient small vehicles produced by them, industry players said the real impact could be in specific segments such as components and tyres, where the US is the biggest export market. Tata Motors-owned Jaguar-Land Rover could be one of companies that will be hit by Trump’s tariffs.

With exports of $2.2 billion, the US accounted for 29% of all auto parts shipped from India. Similarly, with tyre exports of Rs 4,259 crore (around $500 million), the US commanded 17% of the Indian exports globally. In recent years, both segments have gained substantially from the China + 1 strategy pursued by global auto OEMs.

Besides, some of the Indian players have production facilities in countries such as Mexico and will be impacted.

Tyre companies said they are watching how the developments unfold. “The US has traditionally been the largest export destination for Indian tyres, but the industry remains confident in its strong fundamentals of cost competitiveness, quality and adherence to global standards. If tariffs are applied uniformly across exporting nations, Indian tyres can retain their edge,” said Rajiv Budhraja, director general of Automotive Tyre Manufacturers Association.

Auto industry experts said that’s true for other auto parts too. “There are a set of components where India is 15% to 20% cheaper including foundry parts, rubber components and even plastics where the pinch will be on margins to begin with,” said the CEO of a top auto component company.

For passenger vehicles and trucks, the US is not a large market, accounting for less than 1% share of total exports from the country. India’s right hand drive vehicles are mostly sold in west Asia, South Africa, Saarc and African nations. Two-wheeler exports mostly go to southeast Asia, Africa and Latin America.

“The US is not a significant destination for Indian passenger or commercial vehicle exports so if there is an impact it will be on components industry. However, since the duties will be levied on all markets, the relative competitive position between India and other markets like Vietnam, Thailand or China does not change with this,” said Shenu Agarwal, vice-president of industry lobby SIAM.

There could be some pressure on margins. “From May 2025 or later, the new tariffs would compress the operating margins of Indian component exporters by 125-150 basis points from the current 12% to 12.5% range,” Anuj Sethi, senior director at Crisil Ratings.

Apart from generating revenue, Trump is hoping that the tariffs would prompt some of the companies to locate production facilities in the US. “If Indian companies invest in putting up facilities in the US going ahead, they will gain tariff benefits,” said the CEO of a large component company. “But managing the complexity of the global supply chain will be trickier.”

Auto industry sources said the immediate impact could likely be on companies that have a direct exposure to the US market like Tata group’s sale of Jaguar and Land Rover cars in the US, companies like Sona Comstar that supply parts to Tesla and other North American auto majors, companies like Sundaram Fasteners which supplies powertrain components to US giant General Motors among many others. Besides, exporters with goods in transit could face a significant hit if higher duty is imposed.


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