Trump may have to choose: Making trade deals or keeping his car tariffs

Politico

2 days ago

President Donald Trump is telling domestic audiences he won't cut his 25 percent tariffs on foreign cars as part of any trade deals he negotiates. But other countries — who collectively send millions of vehicles to the U.S. each year — haven't gotten that message.
Trading partners like the EU, Japan and South Korea are laboring under the impression that the auto tariffs, which Trump imposed in April, are still on the table, according to two people familiar with the talks between Trump officials and those countries, granted anonymity to discuss private conversations.
If Trump is really unwilling to lower or eliminate his tariffs on foreign cars, it could prove to be a major hurdle to securing meaningful trade deals with some of the country's top trading partners. Japan, South Korea and Germany sold more than $121 billion in cars and car parts in the U.S. in 2024.
The White House did not answer when asked if auto tariffs were on the table for negotiations and instead reiterated the goal of the tariffs.
'No president has taken a greater interest in reviving America's once-dominant auto industry than President Trump, and the auto industry is a key focus of the Trump administration's trade and economic policies,' said Kush Desai, a White House spokesperson. 'Discussions with our major trading partners continue, and the Trump administration continues to seek better trade deals for American industries and workers.'
A decision to lift the tariffs for more countries, particularly those whose companies compete most fiercely with American carmakers, risks alienating a powerful manufacturing bloc and undercutting a central tenet of Trump's trade agenda — forcing companies to build more products in the U.S.
The Trump administration has assured American automakers that when it comes to auto tariffs being used as a bargaining chip, they have 'nothing to worry about,' according to a person familiar with discussions between the administration and Detroit's 'Big Three' auto companies, granted anonymity because of the sensitive nature of the talks. Trump has said a deal to lower the tariff on a small number of British cars, announced last month, was an exception.
'I won't do that deal with cars' for other countries, Trump said when announcing the terms of negotiation with the U.K. on May 8. The British auto brand Rolls-Royce is 'a very special car and it's a very limited number too. It's not one of the monster car companies that makes millions of cars,' he noted.
Even that agreement, which lowered the tariff on 100,000 cars, less than 1 percent of total U.S. annual car sales, drew a sharp rebuke from U.S. automakers. 'This hurts American automakers, suppliers, and auto workers,' the American Automotive Policy Council, which represents General Motors, Ford and Stellantis, said at the time, saying they hoped it 'does not set a precedent for future negotiations with Asian and European competitors.'
The tension between the two goals — boosting domestic auto production while also negotiating delicate agreements to lower trade barriers — highlights the challenge facing the administration as it races to secure deals with dozens of countries before the president's double-digit 'reciprocal' tariffs are slated to kick back in next month.
'To ease the sting of those tariffs on the auto sectors for Korea and Japan is of course a high priority for them,' said Michael Beeman, a former assistant U.S. trade representative who focused on Japan and South Korea. 'I think for those countries, to be able to declare success from the talks at home, they would expect some sort of consideration.'
The auto tariffs have already been a sticking point in negotiations with Japan and South Korea, both of which are invested in maintaining a high level of domestic auto manufacturing. Auto exports from South Korea to the U.S. have exploded over the past 20 years, from $8.7 billion in 2005 to $37.3 billion in 2024, according to data collected by the Census Bureau.
Japanese Prime Minister Shigeru Ishiba has said publicly that any trade deal with Japan would have to result in lower auto tariffs. Now, as the two countries are on their fifth round of talks, with a planned meeting between Ishiba and Trump at the G7 in Canada in two weekends, both countries are projecting optimism about a deal.
'I think we'll also need to address, at a minimum, the auto [Section] 232 tariffs,' said Wendy Cutler, a former negotiator with the U.S. trade representative's office and the vice president at the Asia Society Policy Institute, said when asked what it would take to get a deal with Japan.
Cutler said any deal with Japan or South Korea could have a lower tariff for a certain number of vehicles, similar to the deal with the U.K. Or, 'they could also just be very vague and say that the U.S. notes Japan's concern on the auto tariffs, and both sides agree to negotiate possible lowering of the tariffs in this detailed negotiation to follow,' she said.
Trump has already agreed to lower tariffs on automobiles once. In his first trade agreement since imposing a global 10 percent tariff on nearly every U.S. trading partner and potentially higher rates on more than 60 countries, Trump struck an agreement with the U.K. that would allow the country to ship 100,000 vehicles into the country at a 10 percent tariff — lower than the current 25 percent tariff on automobiles and auto parts.
The deal drew condemnation from American automakers, who noted that it meant a lower tariff on cars imported from the U.K. than on North American-made cars that include U.S.-made parts.
They expressed concern that lowering tariffs with major auto manufacturing countries like Japan, South Korea and Germany would make it more expensive to build cars with parts from North America — creating an unfair playing field and effectively undercutting the administration's effort to boost domestic auto manufacturing.
Vehicles made across the integrated North American supply chain still face a 25 percent tariff on non-U.S. made content, even if the vehicle is compliant with the U.S.-Mexico-Canada trade agreement that Trump negotiated in his first term.
The Trump administration has continued to press foreign automakers to move production to the U.S. Last week, Trump met with German automakers, who offered $100 billion in investment in the U.S., according to Commerce Secretary Howard Lutnick.
Trump — and Republicans on Capitol Hill — say those commitments are a sign that tariffs are working.
'They make BMWs in South Carolina, Volvo. They make Mercedes in Alabama,' Sen. Lindsey Graham (R-S.C.) pointed out during a Senate Appropriations Committee hearing Wednesday. Under Trump, 'They're talking about making the engine now in South Carolina. They're talking about more content in South Carolina.'
There has yet to be an uptick in U.S. auto manufacturing, however, a reminder that the investment pledges will take years to fully develop. Auto manufacturing jobs held steady between April and May, though there were 2,240 fewer auto manufacturing jobs in May, compared to 2024, according to the Bureau of Labor Statistics.
While welcoming the announcements, the Trump White House has given no indication the investment pledges will convince the president to lower auto tariffs on foreign countries.
'I mean, unless somebody shows me that there's another kind of a car that's comparable to a Rolls-Royce,' Trump said in May, 'and there aren't too many.'