Autos Excluded From Trump's Executive Order Lowering Tariffs To 15%

Affects Europe and Korea automakers as well

Contrary to Tokyo’s hopes and pleadings, Donald Trump excluded the sectoral tariffs on autos, steel, (and prospectively semiconductors, pharma, and other products) in his August 1^st Executive Order. This order lowered tariffs on Japan and some other countries from 25% to 15% and goes into effect on August 7th.

The Executive Order applies only to the so-called “reciprocal tariffs” which apply to all the goods exported by a given country, based on the objective of lowering their trade balance with the US as well as political criteria. Autos, along with steel and aluminum and, down the road semiconductors and pharmaceuticals, are in separate category of “sectoral tariffs” based on the notion of reducing US dependence on imports on grounds of national security. They are applied under a different US law. The sectoral tariffs were not included in the Executive Order.

Japan’s chief negotiator, Ryosei Akazawa, stated that the difference between 25% and 15% is costing one automaker approximately as much as Y2 billion ($14 million) per day. Nissan, which suffered a net income loss of ¥679 billion ($4.5 billion) in fiscal 2024 (ending in March 2025), hardly needs the added financial stress. Moreover, automotive products account for almost a third of all Japanese exports to the US.

It remains unclear when, or perhaps even if, Trump will lower the tariffs on autos. At the outset of the negotiations with Japan, Trump did not even want to discuss autos (see this post). While Tokyo says Trump promised to include cars and parts, we’ll all have to wait and see, as with everything Trump does. Perhaps he is trying to extract more concessions.

Here’s one possibility. Ford, General Motors, and Stellantis complain that Trump’s agreement with Japan and Europe puts them at a disadvantage. They have to pay a 25% tariff on automotive imports from Canada and Mexico, while Japanese and European vehicles and parts can come in at 15%. But the issue is a bit more complex.

On all imports from Mexico and Canada, except for autos, the tariffs on imports from Canada and Mexico apply only to goods that do not comply with the North American content rules of origin under the US-Mexico-Canada Agreement (USMCA), e.g., 75% for most products. For products that do comply, the tariffs will apply to that portion of content that does not comply, e.g. 20%. However, when it comes to vehicles, the 25% tariff applies to the non-US content, not the non-USMCA content. When it comes to auto parts, the 25% applies to the non-USMCA content.

In 2023, $100 billion of the $110 billion in US vehicle imports from Canada and Mexico were compliant with the USMCA. However, if, say, $80 billion of this $100 billion in content is generated in Mexico or Canada, rather than the US, then the 25% tariff could apply to that $80 billion. Reportedly, on average, 40% of the value of cars made in Mexico consists of the US, although the share differs widely among the automakers. At 40%, then a 25% tariff on the remaining 60% would be the same as a 15% tariff on the whole car. But the application process is so cumbersome that only a few of the 60 models made in Mexico have received the exemption.

Trump’s intention was to bring more Mexican-Canadian automotive production back to the US. However, Trump has shown a willingness to shift when subjected to heavy lobbying. One solution would be to switch from “non-US” to “non-USMCA” content.

I am just hypothesizing and have no direct evidence that this is the reason for the delay regarding auto tariffs, but that is a possibility. Or perhaps Trump wants something on a totally different issue from Japan and the EU.

Whatever Trump’s reason, Tokyo did not get what it hoped it would have gotten by now. Stay tuned. The ride remains bumpy.