Highlights
 

• Tires exempted from reciprocal duty 
   
• US auto tariff to impact tire and trickle into rubber 
   
• Stellantis halts its Canada, Mexico production
   

In the most recent chapter of the US tariff narrative, President Trump fulfilled his commitment to unveil a reciprocal tariff framework implemented on April 3. Alongside the previously established 25% tariffs on auto imports, a comprehensive 10% tariff on a wide range of goods was implemented on April 3.

Additionally, reciprocal tariffs tailored for the majority of countries will be implemented on April 9, with many set at significantly elevated rates compared to the baseline of 10%. The tariffs specific to each country exhibit significant variation and are designed to tackle non-tariff barriers in addition to aligning with direct tariffs.

The only breather for the auto and allied industries are these tariffs do not supplement the existing 25% US auto tariffs. As a result,the tire industry on one hand has bypassed the reciprocal tariffs but are subjected to the auto tariff regime.

The impact on rubber

The implementation of new U.S. auto tariffs is anticipated to produce significant effects on the global tire and rubber sectors, especially impacting economies that rely heavily on exports. The demand for tires will significantly influence the market, leading to a subsequent effect on rubber products, particularly those involved in automotive supply chains.

The primary issue facing rubber-producing nations is the possibility of a decrease in tire exports to the U.S., a significant market for automotive components. Countries such as China, Thailand, Malaysia, and Vietnam, which are significant exporters of natural rubber and finished rubber products like tires, may experience a decline in order volumes as U.S. buyers aim to mitigate extra expenses linked to tariffs. This would exert downward pressure on prices and the overall demand for rubber.

A gradual shift in the supply chain may occur as certain companies explore alternative sourcing options. This transition may experience a gradual pace and potential disruptions in the immediate future.

China, potentially among the most affected by these tariffs, may redirect its attention to enhancing domestic demand. Chinese tire manufacturers are likely to adjust their export strategies by focusing on regional markets or enhancing their domestic sales efforts to offset the decline in U.S. market share. To stabilize the sector, the implementation of government stimulus measures and incentives aimed at enhancing internal consumption may be considered.

Who pays how much? 

On April 2, conveying the Liberation Day reciprocal tariff proclamation by the President it was clarified that the reciprocal tariffs would not apply to auto and auto parts imports (1). The President’s Executive Order 14257 (2) published on April 7, 2025, said that all articles mentioned in Annex II of the order will not attract the additional ad valorem rate of duty, which starts at 10% and extends up to 50% (reciprocal tariff) imposed on articles imported into the customs territory of the US from different countries. Thus, copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals, and energy and energy products also did not attract reciprocal duty.

However, all imports of auto and auto parts shall be subject to 25% tariff. The only exception given is to the Harmonized Tariff Schedule of the United States (HTSUS) subheading 9903.94.06, which pertains to specific automobile parts under the United States-Mexico-Canada Agreement (USMCA), according to the Federal Register (3).

Trump's recent tariff announcements have significantly disrupted global trade and various industries, particularly the auto sector and its related markets, prompting a thorough analysis of the implications for all stakeholders involved. The domestic players within the US auto and allied spectrum found themselves unexpectedly ensnared in the vortex.

Initially there was some uncertainty/speculation around the inclusion of tire given US is a major tire importer and the White House Fact Sheet (4) released on March 26 did not mention tire. 

Annexe II of President’s Executive Order included Natural Rubber latex, whether or not prevulcanized, Natural Rubber smoked sheets, Technically specified natural rubber (TSNR), in primary forms and Natural Rubber in primary forms other than latex, smoked sheets or technically specified natural rubber (TSNR) (Page 37). The conclusion can be clearly inferred that the ad valorem rate of duty ranging from 10-50% or the 25% duty has not been imposed on rubber.

Clause (g) of Annex I of the Presidential Proclamation contained in the Federal Register says that “the rates of duty set forth in heading 9903.94.05 applies to parts of passenger vehicles (sedans, sport utility vehicles, crossover utility vehicles, minivans, and cargo vans) and light truck classifiable in the provisions of the HTSUS enumerated in (the following) sub-division.”

HTSUS codes belonging to tires and tubes enumerated in the sub-division of Annex I are:

4009.22.0020: Brake hoses made of vulcanized rubber (excluding hard rubber) for use in vehicles

4009.32.0020: Tubes, pipes, and hoses made of vulcanized rubber (excluding hard rubber) for use in vehicles

4011.10.10: Pneumatic radial tires made of rubber

4012.19.40: Retreaded pneumatic radial tires made of rubber

4013.10.0010: Inner tubes of rubber, designed for use on motor cars

4011.10.50: New pneumatic tires, of rubber, of a kind used on motor cars (including station wagons and racing cars), radial, not elsewhere specified or included.

4012.19.80: Retreaded pneumatic tires, of rubber, not elsewhere specified or included.

4013.10.0020: Inner tubes of rubber, designed for use on trucks and buses.

8708.70: Road wheels and parts and accessories thereof

In addition, Clause 4 of the Presidential Proclamation says that the ad valorem tariff of 25% described in the proclamation shall not apply to automobile parts that qualify for preferential treatment under the USMCA (United States Mexico Canada Agreement) until such time that the US Secretary, in consultation with CBP (Customs and Border Protection), establishes a process to apply the tariff exclusively to the value of the non-U.S. content of such automobile parts and publishes notice in the Federal Register.

Clause 5 of the Proclamation further says that “for avoidance of doubt, Clause (4) of this proclamation does not apply to automobile knock-down kits or parts compilations. Clause (4) of this proclamation applies only to individual automobile parts as defined by Annex I to this proclamation that otherwise meet the requirements of clause (4) of this proclamation.”

The April 3, 2025 Proclamation also says that within 90 days of the date of the proclamation, the Secretary shall establish a process for including additional automobile parts articles within the scope of the tariffs.

As things stand now, the imposition of tariffs on automobile imports can also have a domino effect on the rubber spectrum, despite any direct duties. Analysts say the coming days alone can unravel the complete picture.

US domestic producers chary and wary

Meanwhile, the tariff has made the US auto segment nervous. About half of the vehicles sold in the US are foreign-made, mostly in Mexico, Canada, Japan, South Korea, and Germany. Canadian and Mexican car imports will face tariffs based on the percentage of parts that are US-made. If half of the parts are American, the levy would be 12.5% and not 25%.

“Half of the roughly 16 million cars, SUVs and light trucks Americans bought in 2024 were imports. Of the remaining 8 million units, more than half of these cars were assembled from foreign parts. So, what that means is less than 25% of the cars sold in America contain US content on average. That stops right now with the Trump auto tariffs,” White House trade adviser Peter Navarro recently said.

Mexico remains the largest exporter of vehicles to the US, accounting for approximately 2.5 million cars delivered to American dealerships annually. Canada contributes another 1.1 million vehicles. A total of 3.7 million cars are imported from countries like Germany, South Korea and Japan. Under the newly proposed tariff regime, a vehicle valued at $40,000 would face a $10,000 import tariff, making foreign cars much costlier.

In 2024, the US population purchased around 13 million new vehicles and 40 million used ones—meaning nearly 40% of U.S. households bought a car during the year.

Ford CEO critical, workers’ union welcomes

CEO of US auto producer Ford, Jim Farley, recently warned that the tariffs could "blow a hole" in the U.S. auto industry, increasing production costs and potential job losses. Farley highlighted the chaos and additional expenses already affecting the industry, noting that even minor supply chain disruptions could negatively impact the company's bottom line. He said the impacts will be devastating, not only for automakers but also for buyers.

Paul Jacobson, CFO of GE, another US producer, said that if tariffs become permanent, there are many things to consider, such as where to settle down. Should the factory be relocated?

Ford was looking for ways to build up inventory before suppliers were hit by the impact of the tariffs. Analysts said Ford could be less exposed than competitors like GM and Stellantis, but it still faces impact from suppliers that face the tariffs.

Stellantis, which produces 14 top brands, including Chrysler, Jeep, Citroen, Fiat, Peugeot, etc., in rapid response to Trump’s tariffs, halted its Canada and Mexico production on April 4, making it the first US automaker to take such a major step. GM and other automakers now keep a tab on how tariffs on automobiles and parts from Canada, Mexico and other countries will impact their business.

Meanwhile, Shawn Fain, president of the United Auto Workers (UAW) union in the US, traditionally critical of Trump, has voiced support for the tariffs, suggesting they could quickly revitalize American manufacturing jobs. He emphasized that many US manufacturing plants have excess capacity, aligning with the administration's goal of onshoring jobs. However, Fain also stressed the importance of ensuring that any job growth includes union opportunities, which Tesla doesn’t offer.

[1]The White House factsheet - published Apr 2

[2] The President’s Executive Order 14257 

[3] Federal Register

[4]The White House factsheet - published Mar 26