The current administration has rapidly expanded tariff policies first introduced during President Trump’s initial term and maintained under President Biden — creating an environment of accelerating regulatory change and growing uncertainty that makes it increasingly difficult for businesses to plan, forecast costs, and navigate global incentives.
The trade tariffs have been extremely broad-based, in terms of both the countries sanctioned and the commodities/products affected. Tariffs also impact energy imports, raising concerns about national economic security and the balance of trade flows. Instead of imposing tariffs only on certain countries (such as China, historically perceived as an economic and political adversary), the Trump administration has levied targets on imports from even countries that have traditionally been geopolitically and economically aligned with the US, such as the European Union, Canada, South Korea, and Japan.
Introduction to Trade Tariffs
Trade tariffs are taxes imposed by a country on imported goods or services, designed to protect domestic industries and influence the flow of international trade. The United States Trade Representative (USTR) plays a pivotal role in negotiating trade agreements and tariffs with other countries, including major trading partners such as China, Canada, and Mexico.
Tariifs can significantly impact any industry, but the automotive industry, with its complex supply chains and large number of parts, is particularly vulnerable. The United States has experienced a trade deficit in the automotive sector, with American consumers importing significantly more cars and parts into the country than US auto companies exporting to the rest of the world.
While tariffs can be used as a tool to reduce the trade deficit and protect domestic manufacturing jobs, they can also increase costs for consumers and businesses. The World Trade Organization (WTO) sets rules and guidelines for international trade, including tariffs, to ensure fair competition and cooperation among countries.
Countries can impose tariffs on specific products, such as cars or automotive parts, to protect their domestic industries and markets. However, tariffs can also be used as a means of retaliation against other countries that impose tariffs on domestic products, potentially leading to a trade war. The impact of tariffs on international trade and the automotive industry is a complex issue, involving numerous factors and stakeholders, including governments, companies, consumers, and the concept of free trade itself.
Trade Tariffs’ Impact on the Automotive Sector
Since the stated objective of these trade tariffs is to reduce American imports by making them more expensive and encourage domestic manufacturing, the tariffs also target sectors where imports comprise a significant proportion.
Since almost half of all cars sold in the US were imported, the automotive sector was also a target of the new trade tariffs. The US imported automotive products worth $474 billion in 2024, including passenger cars valued at $220 billion.
Though the biggest suppliers were Mexico, Japan, South Korea, Canada, and Germany, all of whom share strong relations with the US, their auto imports are also subject to the new trade tariffs. The future of the automotive industry, particularly in relation to upcoming regulations and innovations, is also a significant consideration.
The uncertainty has been compounded by the varying tariff levels and the stacking of tariffs, which depend on both the country and commodity of the finished product, as well as its components, and the temporary suspension of other trade tariffs for certain countries. Additionally, new compliance conditions such as Pour and Smelt requirements, which mandate that certain materials be not only sourced but also processed in specific countries, further complicate origin tracking and emphasize the importance of accurate, detailed Bills of Materials.
Besides these factors, the highly intertwined nature of auto supply chains adds an additional layer of complexity. The decline in domestic manufacturing jobs in the United States is exacerbated by globalization and structural imbalances in trade relationships. While automobiles manufactured in Mexico rely on Chinese components, the US and Canadian auto industries have been integrated since 1965. The free trade agreements signed in 1989 and 1994 bind these two countries and Mexico even more closely, where each country specializes in specific auto parts. The historical context of oil imports and their significance in the global economy is also noteworthy.
Despite the higher costs and greater intricacies, automotive manufacturers would be reluctant to lose access to the US market, as it is the second-largest automotive market globally after China, with a 17.7% share. Historical shifts and developments within the automotive industry over the decades have shaped the current landscape. Therefore, it is likely that automobile manufacturers will adapt to the new regulatory requirements and attempt to navigate the rapidly evolving tariff landscape through improved supply chain management and analysis of sourcing patterns, however, this will take time and provide uncertainty in manufacturing capacity and sourcing. The role of China in global trade practices and its impact on tariffs and access to its domestic market are also critical factors.
Bill of Materials and Its Significance
It is in this context that the Bill of Materials assumes greater significance. Customs policies play a crucial role in the import of goods and significantly impact trade relations.
A Bill of Materials (BOM) is an extensive list of all the raw materials and components that went into manufacturing the finished product. The availability of imported goods enhances consumer choice and helps prevent inflation.
Manufacturers initiate the assembly process by preparing the BOM. The BOM typically lists the finished product at the top, followed by the individual components.
Each component must be clearly identified, including details such as the part number, material specification, and sourcing information, which ensures traceability. The value of imports and exports has significant implications for a country’s economic balance and trade policies.
In a scenario where the rate of tariff can vary depending on the proportion of specific components and the source country, having visibility into the source of each component and its origin is critical for manufacturers. Border protection measures are crucial in regulating the flow of goods across borders and maintaining national security.
This holds even more true for automotive manufacturers, given that modern vehicles can have over 30,000 parts, which are often sourced from different countries and assembled in another country.
Implications for Automotive Manufacturers
For automotive manufacturers, this is a potential blind spot, as if they do not analyse the tariff applicability at the individual component level, they could end up paying a higher amount in tariffs than is due. Customs policies play a crucial role in the import of goods, significantly impacting trade relations and affecting the overall cost structure for manufacturers.
Conversely, a thorough analysis of the BOM, and sourcing patterns can help automotive manufacturers unlock significant savings and avoid overpayments through the accurate calculation of the total tariff amount, as well as by optimizing sourcing networks and reconfiguring supply chains to ensure procurement from locations where the landed costs (including tariffs) are lower. The availability of imported goods enhances consumer choice and helps prevent inflation by maintaining a steady supply of affordable products.
It is therefore recommended that automotive manufacturers carefully scrutinize the Bill of Materials and calculate the exact amount of tariff payable for each component, taking into account its nature, the country of origin, and the applicable tariff rate. Research and development are crucial for advancing US manufacturing and innovation, thereby ensuring competitiveness in the global market.
Using Technology to Ensure Compliance and Avoid Tariff Overpayments
Since tariffs and regulations are constantly changing — with new trade tariffs being imposed, paused, and met with counter tariffs — automotive manufacturers can use the BOM as a tool to avoid overpaying tariffs. Over time, this also presents an opportunity to streamline supply chains, optimise procurement strategies, and adjust manufacturing locations to reduce exposure to tariffs. The availability of imported goods enhances consumer choice and helps prevent inflation.
Managing this effectively, however, is beyond the scope of human capabilities, given the overwhelming volume of documentary requirements in international trade. Leveraging technology is the ideal option for automotive manufacturers to streamline supply chain documentation, analyze data to gain insights, and proactively reconfigure procurement and transportation networks.
Products such as KlearHub, an AI and ML-powered control tower solution offered by KlearNow, can facilitate this through sophisticated functionalities that enable digitization and centralization of data, real-time analytics, and orchestration of the global compliance process.
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