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Trump’s tariffs could torpedo new car sales in the US
No. 10 | 10th March 2025
Scattergun tariff execution risks hitting the US auto industry. Automakers have developed a complex supply chain that spans Canada, the US and Mexico, and the threat of tariffs risks upending that. Automakers move parts across borders multiple times as well as the finished vehicles for sale in the US. However, the situation is highly fluid. The proposed tariff regime changed three times last week alone. The result of this is that automotive OEMs with vehicles compliant with Trump’s 2020 USMCA trade deal rules-of-origin are currently exempt until 4 April. The end-goal is to locate more vehicle production in the US, but this is easier said than done.
The scope of potential fallout covers nearly half of US light-vehicle sales. Approximately 45% of vehicles sold in the US are imported, and about half of those are imported from either Mexico or Canada. The risk is that these vehicles will soon be subject to 25% import tariffs on finished vehicles, plus additional duties on components that cross the borders during the manufacturing process. Not currently at immediate risk of tariffs, but potentially in the firing line, are car imports from Japan, Korea and Western Europe which combined represent ~3 million vehicles in a 16-million-unit market.
The true impact is likely to be more moderate. Hitting the auto industry with tariffs would lead to both higher manufacturing costs and potentially the added cost of reorganising supply chains, which are likely to be passed on to consumers. With the affordability of new cars already an issue (more than 17% of all auto loan payment in the US are now >$1,000 per month), vehicle sales in the US could underperform expectations as a result. Sales were predicted to return to a ‘normal’ level this year of ~16 million new vehicles but could see a reduction of approximately 1 million units as a result of Mexico-Canada tariffs.
The result would be a drag on PGM demand. Assuming a negative impact of 1 million vehicle sales this year as a result of import tariffs on Mexico and Canada, North American PGM autocatalyst demand could see a ~200 koz hit on a 3E basis (Pt + Pd + Rh). The palladium market is forecast to see a larger surplus year-on-year in 2025, and a cut to demand would add to that. Total North American (US + Canada + Mexico) autocatalyst PGM demand was forecast to reach just over 3 moz 3E in 2025, but with the impact of tariffs it could fall to 2.8 moz, flipping the market into decline year-on-year, versus what was a stable demand outlook pre-tariff.
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