Nearshoring and trade talks
The White House
New tariff rates set for EU, Canada and Mexico
In the latest tariff news, US president Donald Trump has set new rates for the likes of the EU, Canada and Mexico, having sent letters detailing the new levies of between 20-50% to more than 20 trade partners over the last few days.
The new tariff rates are set to be implemented by 1 August, unless
trade negotiations take place before then, according to the letters. In many of
them, Trump stated that if reciprocal tariffs are imposed by other countries
against the US, that same rate will be added onto the rate Trump has set for
the country, essentially escalating potential trade wars around the world.
Globally, there has been a blanket tariff of 10% on global goods entering the
US unless stated otherwise (through letters to individual countries or trading
blocs), but even this could change, as Trump recently alluded to raising this
up to 15-20% in an interview with NBC
News.
New US tariffs on Mexico and Canada
Despite Trump previously setting the tariff rate for imports
to the US from Mexico and Canada at 25%, or 27.5% if non-USMCA compliant, he has
yet again upped the duties that will be applied. Now, the tariff stands at 30%
for goods from Mexico, and 35% for goods from Canada.
The letters added that “goods transshipped to evade this
higher tariff will be subject to that higher tariff”, seemingly in an attempt
to stop nearshoring taking place in North America that would help reduce the
cost of cross-border trade.
At the time of publishing, it is not thought that these new
rates will be stacked on top of other tariffs, so for vehicles coming from Canada
or Mexico into the US that are USMCA-compliant, the rate will be 25%, without
the additional 30-35% duty. For vehicles that are non-USMCA compliant, the rate
will be 27.5%, without the additional 30-35% duty.
Similarly, US-sourced parts can be offset from USMCA-qualifying
vehicles built in Canada or Mexico and imported to the US. While this amount
varies per model, it could reduce the 25% vehicle tariff down to between 12-15%.
While it’s unclear how long this USMCA-compliant exemption
will last, it at least provides a relief to the automotive industry in the
short-term.
However, other parts from Canada and Mexico that are not
strictly classified as ‘automotive’ parts, such as material components and
minerals, will likely be tariffed heavily. Steel and aluminium imports are
still facing a 50% tariff, alongside a 50% tariff on copper, and many other
commodities are still likely to be announced.
In the hours following the announcement of 50% tariffs on
copper, prices jumped to an all-time high. In the US, copper futures (standardised
exchange-traded contracts for buying and selling a quantity of copper) soared
to $5.682 a pound, from $4.9773.
This of course presents further difficulties to the North
American supply chain, leading to potential material shortages, capacity bottlenecks
and probable price rises, and ultimately leading to delays.
At the same time, the tariffs are beginning to hit the US
market, showing in declining OEM sales, which could lead to price rises as carmakers
start to sell through stock.
New tariffs threatened for the EU
Trump has raised the ‘reciprocal’ tariff set for the EU on ‘Liberation
Day’ from 20% to 30%, with the exception of goods from the UK, which are set at
a 10% duty following the US-UK trade deal.
While vehicle imports will be slightly lower than this, at
27.5% for non-USMCA-compliance, and 25% for automotive parts (likely to hit
German OEMs hardest as they often import engines from Europe to the US), the
tariffs for parts not classified specifically as ‘automotive parts’ such as
materials will be steep.
The EU already rallied against Trump’s tariffs on steel and
aluminium, when they were set at 25%, threatening reciprocal tariffs on €21bn of US goods. Now the rate on steel and aluminium has
doubled to 50% for imports to the US, but the EU has pulled back from its
reciprocal threat, postponing any additional tariffs against America until 1
August in hopes of reaching a trade deal.
Any OEMs that have a presence in the EU
and the US that may look to evade tariffs by localising or refocusing their
manufacturing within the US will likely face extra costs in doing so, because the
additional tooling, equipment and technology needed to expand manufacturing capacity
at their US plants will be hit by higher tariffs.
The EU’s lead negotiator Maroš Šefčovič
said that if the tariffs remain by 1 August, they will make it “almost impossible
to continue” current transatlantic trade volumes.
