Please join us for the next installment of the Morgan Lewis Automotive Hour Webinar series, focused on tariffs, subsidies, and policy shifts in the automotive industry.
Key Takeaways
With tariffs set to play a central role in US trade strategy under a second Trump administration, automotive and technology companies need to be poised to navigate these evolving trade policies. A keen focus on tariffs and subsequent supply chain realignments, along with the shifting global regulatory environment, will be of material importance to companies’ ability to stay (or remain) competitive.
The following key takeaways explore the trends and potential outcomes of these policy shifts and provide insights into how businesses can best prepare for, and adapt to, these impending changes.
- Prioritization and Implementation of Tariffs Under the Second Trump Administration: Tariffs are expected to play an even greater role in trade policy under the second Trump administration. During Trump’s first presidency, tariffs were used as tools for addressing trade imbalances, particularly targeting China under Section 301 of the Trade Act of 1974, with rates ranging from 7.5% to 25%. Notably, President Biden continued many of these measures, even expanding tariffs on Chinese electric vehicle (EV) imports and EV battery imports in favor of providing subsidies for domestic EV manufacturing through the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. On the campaign trail, Trump indicated an intention to increase tariffs further, with proposals including a universal tariff on foreign goods and elevated rates on imports from China, Mexico, and BRICS nations.
- Impact on US Imports and the Auto Industry: The proposed tariffs are expected to create immediate disruptions in shipping and logistics as companies rush to import goods before the tariffs take effect, potentially leading to increased freight, trucking, and warehouse rates. Longer-term implications include consideration and potential implementation of supply chain realignments, such as relocating manufacturing operations or sourcing from alternative countries, tariff engineering or adjustment of operations to minimize duty liabilities. Exploration and implementation of such strategies requires careful planning for and compliance with US customs laws to mitigate enforcement risks. Additionally, tariffs could lead to significant changes in trade agreements like the United States-Mexico-Canada Agreement (USMCA), with a focus on curbing Chinese transshipment and bolstering protections for the manufacture and assembly of parts, components, and vehicles in the United States.
- EU's Strategic Funding and Trade Defense Responses: The European Union’s approach to subsidies and tariffs highlights its dual focus on fostering innovation within critical industries, such as automotive and clean technology, while guarding against unfair advantages from non-EU subsidies. Subsidies, such as the €4.6 billion ($4.7 billion) earmarked for battery production, underscore the EU's commitment to becoming a leader in resilient supply chains. At the same time, defensive measures like the Foreign Subsidies Regulation and Anti-Subsidies Regulation, as well as other trade defense measures, such as the anti-coercion tool and the international procurement instrument, aim to ensure fair competition by scrutinizing third-country subsidies or advantages, and by imposing tariffs (such as against Chinese EVs) or other countervailing measures, mostly affecting non-EU companies.
- Strategic Recommendations for Businesses: To thrive in this complex environment, businesses should prioritize a comprehensive assessment of their supply chains, identifying vulnerabilities and opportunities for realignment to mitigate risks posed by evolving tariffs and trade policies. Evaluating alternative sourcing strategies, diversifying suppliers, and investing in localized manufacturing can help enhance resilience. Companies should also evaluate strategic moves like forum shopping within the European Union to secure favorable investment climates and funding opportunities, ensuring they remain competitive amid evolving trade policies.
For help navigating evolving trade policies, assessing and mitigating supply chain risks, and defending against enforcement actions, please contact Amanda Robinson, Katie Hilferty, and Christina Renner.