Strategic Analysis of Trump 2.0 Policies and their Potential Impact on the Global Automotive Industry, 2025

Cost Pressures Expected in the Medium Term as Potential Disruptions to Established Supply Networks Prompt Automotive OEMs to Recalibrate Sourcing and Manufacturing Strategies

US President Donald Trump imposed a 25% tariff on imports of passenger vehicles, light trucks, and certain automotive parts (engines, transmissions, powertrain parts, and electrical components, among them) on March 26, 2025. He also announced a more comprehensive set of "reciprocal tariffs," starting at 10% on almost all goods from most countries.

Subsequently, although the core 25% tariffs on imported vehicles and parts were retained, President Trump temporarily suspended several additional retaliatory tariffs and delayed tariff implementation on United States-Mexico-Canada Agreement (USMCA)-compliant automakers and goods. This was done mainly to avoid cumulative tariff burdens and assuage US automakers about the economic and supply chain fallout of these measures.

Government policies, including the termination of EV incentives, the pause on charging infrastructure funding, and the rollback of EV mandates, are projected to slow the growth of EVs in the United States over the next 5 years. US EV manufacturers will find the going increasingly challenging as the reliance on imported lithium-ion batteries and rare earth elements, most of which come from China and other Asian suppliers, will mean higher costs.

As uncertainty continues to swirl, questions loom about how the highly intertwined, hyper-globalized automotive industry will be affected. What will the future hold for both domestic and foreign automakers, manufacturing output, component suppliers, supply chains, and consumers?

This inflationary effect, coupled with the dial back on EV incentives, may artificially extend ICE dominance in the short term but will weaken their global competitiveness over the long term. Overall, as automakers divert capital toward tariff mitigation and supply chain restructuring, rather than R&D, innovation in transformative technologies, including electrification, will lose out.

Consumers have yet to feel the impact of tariff increases on auto parts in terms of higher prices. This is due in part to competitive pressures and strategic decisions taken by automakers. However, this scenario is poised to change as competitive pressures diminish and companies seek to maintain profitability.

In drawing up roadmaps for the future, automakers are poised to reassess their auto parts sourcing strategies and manufacturing footprint. Many are turning to regionalized production and supply chains in a bid to minimize tariff exposure and maintain cost competitiveness in the long term.

Scope of Analysis

• In 2025, the global trade and economic growth momentum is forecast to be a complex function of political, trade, and policy moves made under the second Trump administration in the United States.
• Following 3.2% real GDP growth in 2024, the global economy will likely maintain 3.2% to 3.3% annual growth momentum through to 2028, with emerging markets (EMs) retaining their leaderboard positions in terms of economic growth.
• Our baseline scenario considers President Trump's 25% tariff on all Mexican and Canadian imports and a 10% tariff on Chinese imports, alongside proportional retaliatory tariffs from Mexico and Canada.
• Our conservative scenario assumes between 25% and 35% tariffs on Canadian and Mexican imports, 60%+ tariffs on Chinese imports, 10% to 20% blanket tariffs on all imports, and 200%+ tariffs on car imports from Mexico. Approximately 50% to 60% tariffs on key US exports and 10% to 25% tariffs from Canada, Mexico, and the EU are assumed as part of retaliatory moves.
• Between 2025 and 2028, within the base case, the impact on GDP will remain muted with key Asian EMs buoying global demand and economic growth. However, in the conservative scenario, adverse and protracted trade wars can potentially shave off 1.5% from global GDP growth in 2028, push global inflation beyond 6.0%, and induce a multiquarter recession in economies such as the United States, Canada, Colombia, Mexico, Germany, and South Korea.

Research Scope

Content Present in Points

• Companies to Action
• Best Practices
• Frost Radar
• Growth Opportunities
• Growth Generator
• Transformation
• Ecosystem