Trump's 25% Import Tariff on Cars Comes into Effect

The 25% import tariff imposed by the Donald Trump administration on automobiles a week ago went into effect on Wednesday. The tariffs were announced on March 26. Trump had also announced a 25% import duty on foreign-made auto components, used in vehicles assembled domestically. 

The 25% tariff on auto components will go into effect on May 3.

Reciprocal Tariffs

Separately, Trump also announced 'reciprocal' tariffs on all countries including India. However, goods such as cars, car parts, steel and aluminium, which have already been covered by other enhanced tariffs, are not covered by the reciprocal tariffs announced on Wednesday. Given that the 25% duty does not apply non-PV segments and their parts, they are likely to come under the 26% slab.

The US has imposed a 26% tariff rate on all imports from India, except auto, auto components, steel etc. 

Meanwhile, for China and the European Union, the tariff rate stands at 34% and 20%, respectively. On imports from UK, Japan and Vietnam, it has imposed 10%, 24% and 46% tariff rate respectively. 

Trump called the new tariffs a necessary step to rebuild domestic industries. “For decades, our country has been looted, pillaged, and plundered by nations near and far, both friend and foe alike. American steelworkers, auto workers, farmers and skilled craftsmen, they suffered gravely. They watched in anguish as foreign leaders stole their jobs," the US President said while addressing the crowd in the White House Rose Garden.

“We will pry open foreign markets and break down foreign trade barriers, and ultimately, more production at home will mean stronger competition and lower prices for consumers,” he said.

“The new tariffs will remain in effect until such a time as President determines that the threat posed by the trade deficit and underlying nonreciprocal treatment is satisfied, resolved, or mitigated,” according to the White House.

Impact on India

The 25% tariff announced in March is expected to have an impact on Tata Motors Jaguar Land Rover, which derives 33% of its sales from North America. 

“We estimate 25% of consolidated EBITDA from JLR North America business. According to an analyst, the JLR North America business contributes approx 25% of the consolidated EBITDA. Due to tariffs, for every 10% hit on North America volumes, consolidated EBITDA can be hit by 3-4%.

According to Saurabh Agarwal, Partner and Automotive Tax Leader at EY India, “With US automotive tariffs rising, India's electric vehicle sector has a prime opportunity to capture a larger share of the US market, especially in the budget car segment. China's 2023 auto and component exports to the US stood at $17.99 billion, while India's were only $2.1 billion in 2024, highlighting the potential for growth. To accelerate this, the government should enhance the PLI scheme by including more auto components, opening it to new players, and extending it by two years."

Among automobile components makers, Trump’s tariff announcement is expected to affect passenger vehicle segment. There is lack of clarity on whether the tariffs would be applicable for other vehicle categories as well. 

With the likely increase in vehicle prices in the US, industry vehicle demand is likely to be impacted, which will affect sales for component companies, according to Kotak Securities’  Vice President Research, Arun Agarwal. 

“Further, margins of suppliers may come under pressure as they may need to partly absorb cost pressures. We believe there will be some impact, which the suppliers will have to bear... Having said that, it needs to be seen on how higher tariffs are absorbed across the supply chain that includes customers, OEMs and suppliers. The extent of impact for Indian players will also depend on the US-India bilateral agreement over the next few months,” he said.

With likely increase in vehicle prices in US, industry vehicle demand is likely to be impacted, which will affect sales for component companies, according to analysts. 

Among Indian auto components makers, Sona BLW gets 43% of revenue from North America, most of which is from passenger vehicle parts segment. Samvardhana Motherson International which has manufacturing operations in US, gets 20% of revenue from the country, and 4% of revenue from Mexico, which is mostly exported to US. Significant part of SAMIL’s revenue is from passenger vehicle segment. 

Bharat Forge gets 22% of revenue from US. Of this, 55-60% is to commercial vehicle segment, 5-10% is from passenger vehicles and remaining from non-auto. Ramkrishna Forgings gets 30% of revenue from North America and Balkrishna Industries gets 16% of sales from Americas. 

“This sensitivity is assuming that US sales and only PV segment exposure is impacted. Assuming 10% hit on sales in above mentioned segments, then FY26E EPS (earnings per share) hit can be 4-5% for Sona BLW and SAMIL, and negligible impact on Bharat Forge,” said an analyst.

The Automotive Component Manufacturers Association of India President Shradha Suri Marwah said, “ACMA remains hopeful that the ongoing bilateral negotiations between the Indian and US governments will lead to a balanced resolution that benefits both economies. We believe that the strong trade relationship between India and the US, especially in the auto components sector, will encourage continued dialogue to mitigate the impacts of these measures.”

At 1028 IST, the Nifty Auto index was down 0.7% at 21,267.80. In comparison, Of the 15 constituents in the index, 11 were trading lower, and rest were up slightly. Balkrishna Industries, Bharat Forge and Bajaj Auto were among the top losers.