Trump’s Autos Impact Likely to be Primarily Tariffs, but Tax Credits and Emission Rules Also in Play

We expect trade policy and electric vehicle tax credits to be the US auto industry focus of a second US presidential term for Donald Trump. Emission regulations will also likely come into play, as we don’t expect the Trump administration to grant California a waiver to set its own rules under the Clean Air Act of 1970. We also expect Environmental Protection Agency rules for 2027-32 model years issued in March, which, relative to the 2026 rule, call for a nearly 50% reduction in average light vehicle fleet carbon dioxide emissions for 2032 down to 85 grams (73 for cars and 90 for trucks) of C02 per mile, to be reduced or eliminated.

In an Aug. 19 Reuters interview, Trump said he’d consider eliminating the $7,500 federal tax credit for consumers buying EVs. However, we think this will be hard to do without new legislation because the credits (as well as battery manufacturing credits) are part of the Inflation Reduction Act. Some may think Tesla TSLA CEO Elon Musk serving as a Trump advisor will help keep EV credits, but we think Musk wants the government out of EVs as much as possible. If Musk can convince Trump to establish federal autonomous vehicle rules, we think that’s a good thing for the auto industry because we think firms want one set of rules rather than each state making its own.

We see trade as where Trump will have the highest impact on the industry. The US-Mexico-Canada Agreement Trump established in his first term, replacing NAFTA, can be reviewed if any of the three nations request it in July 2026. It’s possible Trump will seek to amend USMCA to place provisions to hit Chinese automakers with large tariffs should they use Mexico or Canada to export vehicles to the US. Trump on the campaign trail talked about tariffs on vehicles from Mexico of as much as 200%. He could also just defy USMCA and set those tariffs anyway. For now, these tariffs would only affect possible future production, as the Chinese are not exporting to the US.

We think tariffs only buy US automakers time until the Chinese build US plants to avoid levies. Tariffs of 100% on EVs exported from China to the US are currently in place after President Joe Biden quadrupled the tariff this year. However, the tariff does not affect the market much because only the Lincoln Nautilus, Buick Envision, and Polestar 2 are made there and sold in the US, with only the Polestar 2 an EV. Nautilus and Envision have 25% tariffs. We think the worst-case trade scenario for autos is that Trump sets large tariffs on all vehicle imports into the United States, even if made in Mexico or Canada. Such a tariff would especially hurt GM GM and Stellantis STLA, which, through September of this year, have about 36% and 35% of their respective full-size pickup truck production in Mexico, while Ford F produces all its F-Series pickups in the US. The Ford Maverick compact pickup is made in Mexico, however, and Ford earlier this year said it will establish Super Duty Capacity in Canada in 2026. US production mixes of 2024 North American light-vehicle production for the Detroit Three through September are about 82% for Ford, 63% for GM, and 66% for Stellantis. The same ratios for Mexican production are about 15% for Ford, 30% for GM, and 24% for Stellantis, so GM would be most exposed to tariffs on vehicles made in Mexico but sold in the US among our US automaker coverage.

We think a large-scale tariff on any imported vehicle regardless of production origin would cost each firm billions in profit, be painful to middle-class workers at the automakers, and cause more vehicle-affordability problems for all American consumers (which is already a problem), so we don’t expect the worst-case scenario. We do expect high tariffs on vehicles imported from China under Trump. Even if no tariff is placed on imported vehicles, tariffs instead just on parts or changes to USMCA that exclude current vehicle content from being tariff-free would likely mean higher pricing for consumers as well, so we think the Trump administration needs to be very careful with how it pursues its agenda to promote American manufacturing so that it doesn’t hurt American manufacturing and American consumers in the process.