Yesterday President Trump issued a Proclamation under Section 232 of the Trade Expansion Act of 1962, imposing a 25% tariff on imported automobiles, effective April 3, 2025, and on certain imported automobile parts, effective no later than May 3, 2025.
The President’s action follows a Section 232 investigation conducted by the U.S. Department of Commerce from May 2018 to February 2019, during President Trump’s first administration. That investigation, concluding in a report issued on February 17, 2019, found that automobiles and certain parts thereof were being imported into the U.S. in such quantities and under such circumstances that threatened to impair national security. At that time, although the President concurred with Commerce’s findings, he did not take any action to impose duties. Rather, he tasked the U.S. Trade Representative with pursuing negotiations with trading partners, but no agreements were reached.
Factual Basis for the President’s Actions
The Proclamation observes that the general state of the U.S. automotive industry has not improved since the issuance of the 2019 report, noting a stagnant U.S. share of worldwide automobile production. The action, taken pursuant to advice from the Secretary of Commerce, provides that U.S. automotive manufacturers have continued to experience numerous challenges to their supply chains, shortages of materials and key electrical components (such as semiconductor chips), and labor challenges. It further asserts that the COVID-19 pandemic exposed vulnerabilities in global supply chains, exacerbating reliance on foreign automotive production and further threatening national security. This statement is largely consistent with a 2023 report by the U.S. International Trade Commission on automotive rules of origin under the United States-Mexico-Canada Agreement (“USMCA”), which found that, among several factors, the COVID-19 pandemic and semiconductor chip shortage “significantly depressed automotive production for multiple years.”
Autos and Automotive Parts Covered with Limited Exceptions
The 25% tariff applies to passenger vehicles, light trucks, and specific auto components deemed critical to U.S. manufacturing, to be outlined in Annex I of a forthcoming Federal Register notice. The Proclamation defines the automobile parts as: engines and engine parts, transmissions and powertrain parts, and electrical components. As detailed below, the forthcoming Annex I may be expanded to include additional automobile parts at a later date.
Similar to the steel and aluminum 232 duties and other Presidential actions imposing tariffs, no drawback is available with respect to the duties imposed. Furthermore, any covered merchandise entered into a U.S. foreign trade zone (FTZ) on or after 12:01AM ET on April 3, 2025, must be admitted as “privileged foreign status” as defined in 19 C.F.R. § 146.41, which generally locks in place the duty amount owed regardless of if a product is transformed within the zone.
For automobiles qualifying for preferential tariff treatment under USMCA, importers must submit documentation to Commerce identifying the amount of U.S. content in each model of automobile imported into the United States. Thereafter, Commerce may approve imports of such automobiles to be eligible to apply the 25% tariff only to the value of the non-U.S. content of the automobile. Currently, this partial relief for U.S. content will not apply to automobile parts qualifying for USMCA until a process has been established by the Secretary of Commerce, in consultation with U.S. Customs and Border Protection (“CBP”) and notice has been published in the Federal Register. Although there is no date by which this process must be established, given the effective date of the 25% tariffs on automobile parts it will likely be finalized on or before May 3, 2025.
Despite referencing the United States-Korea Free Trade Agreement (“KORUS”) in the Proclamation, no exceptions, similar to those described above for USMCA, have been made for goods qualifying for preferential treatment under KORUS. Reference to KORUS in the Proclamation, however, may signal the Administration’s willingness to negotiate terms for U.S. auto manufacturers pursuant to this agreement.
Planned Expansion of Section 232 Duties to Additional Automobile Parts
Similar to the actions imposing additional 232 duties on steel and aluminum, the Proclamation also provides a forthcoming process for section 232 duties to be imposed on imports of additional automobile parts and components. These may be identified by the Secretary of Commerce’s own initiative or through a producer-initiated request process.
The Proclamation directs Commerce to create a process for addressing requests to include additional automobile parts within the scope of the broader automotive duties by establishing that they impair national security or otherwise undermine the objectives of the relevant Presidential actions within 90 days — until June 24, 2025. Commerce will then have 60 days to determine whether to apply the duties to the requested product.
Continued Enhancement of Enforcement by CBP
The Proclamation also directs CBP to continue enhancement of its enforcement activities with respect to the Section 232 tariff measures, including by taking “any necessary or appropriate measures to administer the tariffs imposed by this proclamation.” Notably, it provides that if CBP determines that an importer has undervalued subject autos and parts by overstating U.S. content, the 25 percent tariff shall apply to the full value of the automobile—regardless of the actual U.S. content of the automobile. In addition, the 25 percent tariff shall be applied retroactively as early as April 3, 2025 and prospectively to the full value of all automobiles of the same model imported by the same importer until the importer corrects the overstatement as verified by CBP.
Importers should ensure accurate tariff classification of affected products under the Harmonized Tariff Schedule (HTS) and adhere to country-of-origin rules. Proper customs valuation, documentation and recordkeeping, particularly pertaining to any claims made under USMCA, will be essential to ensure compliance.
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Cassidy Levy Kent’s attorneys, compliance professionals, economists, and licensed customs brokers have experience assisting clients navigating tariff changes, supply chain challenges, and supply chain tracing. Our team is well-versed in the supply chains and operations of various industries, including the automotive sector. We expect further developments on these and other tariffs and will continue to provide updates. Please contact us with any questions.