PwC’s US Tariff Industry Analysis – Automotive and Aerospace

In brief

What happened?

Since taking office on January 20, President Trump has introduced several policies and executive orders. On his first day in office, he issued the “America First Trade Policy,” which launched an investigation into unfair trade practices, expected to conclude on April 1. A key component of this investigation, "Unfair and Unbalanced Trade," targets countries with significant annual trade deficits in goods, potentially subjecting them to country-specific tariffs. This includes several European Union nations (e.g., Germany, Ireland, and Italy), Asian jurisdictions (e.g., Vietnam, Japan, and Taiwan), and other global trade partners. A review of unfair trade practices by other countries and a consultation with respect to the United States-Mexico-Canada Agreement (USMCA) also are key components of the investigation.

Additionally, on February 13, President Trump introduced the Fair and Reciprocal Plan, designed to evaluate and impose reciprocal tariffs on countries that enforce higher duties/tariffs on US goods, including through a value-added tax or other non-tariff barriers. The European Union, India, and Japan have been identified as potential targets due to their tariff policies on American products.

Both the America First Trade Policy and the Fair and Reciprocal Plan are expected to have their investigations completed by April 1 with potential new tariffs as soon as April 2. 

Why is it relevant?

Importers and purchasers across all sectors, including the Automotive and Aerospace industry, must assess the potential impacts of these new policies on a go-forward basis. In PwC’s Tariff Industry Analysis, the data reflects that the total tariff impact could increase from roughly $8 billion to $109 billion a year for the Automotive and Aerospace industry, although that figure does not take into account countermeasures that trading partners may impose, or behavioral adjustments that companies may make, in reaction to US policy changes.

The exclusions for the Automotive and Aerospace industry under the first Trump Administration’s tariffs will no longer apply, and likely will increase operational costs and disrupt supply chains in both the automotive and aerospace industries, potentially leading to higher prices for consumers and challenges in maintaining production efficiency.

Action to consider

As tariff rates continue to evolve, it is crucial for US multinational corporations to assess the impact of these trade policies on their business operations and supply chains.

Each multinational corporation, including those not currently subject to tariffs, should assess the pre/post impact of the potential tariffs on its earnings per share and overall shareholder returns. Focusing the impact assessment at operating profit potentially could create a drag on earnings per share based on the implication of corrective actions on the statutory model. It is crucial for companies to model the changes to have data-driven insights that inform strategic decisions moving forward. Companies should also take into consideration the knock-on effects from increased production costs (e.g., dealer implications and reduced demand by consumers) and increased material costs (e.g., steel and aluminum).

For more details, read the full Tax Insight linked below.