This article provides an overview of the recent negotiations and changes to the tariffs implemented by the US regarding the automobile industry.
On 8 May 2025, the United Kingdom (UK) and the United States (US) announced what has widely been reported as a "trade deal" but is something more limited and impermanent. This five-page "trade deal" may be more accurately described as a "proposal" and contains promises from the US regarding the lowering of its tariffs imposed earlier this year.
On 2 April 2025, the US had formally announced a range of tariffs on the import of goods, with imports from the UK subject to a blanket 10% tariff. Imports of steel and aluminium, and cars and car parts to the US have specifically been subject to a 25% tariff.
Background to tariffs
Tariffs are taxes imposed on imports. Almost every country imposes tariffs with the most common kind being "ad valorem", which are levied as a fixed percentage of the value of the imports. Other types of tariffs include "specific tariffs", which are charged as a fixed amount on each imported good. There are also "tariff-rate quotas", which are tariffs that kick in or significantly rise after a certain level of imports is reached.
Tariffs can have several motivations. They might be imposed to provide a source of government revenue, or as a reaction to what a government deems to be unfair practices, or as a bargaining tool.
UK car exports
Nearly 8 in 10 cars produced in the UK are exported, with the top three markets being the EU, US, and China. In 2024, the US was the UK's largest export partner for cars, with £9.0 billion making up 27.5% of total UK car exports. Car exports to the US tend to be higher-end brands such as Land Rover, Jaguar, Aston Martin, and Bentley.
What has changed?
The UK and the US have now agreed on a reduction on tariffs for UK-made cars from 25% down to 10%. This is a significant drop, however, there is a notable cap on this relief. The 10% tariff is only applicable to the first 100,000 UK cars per annum. Any vehicles exported above the 100,000 threshold will be tariffed at 27.5% (comprising the 25% penalty plus the 2.5% base rate).
While the revised terms provide some respite, they fall short of the pre-tariff baseline. Before the first tariffs in April 2025, the US tariff rate on completed cars was around 2.2%. While this reduction is undeniably an improvement, it is still a significant jump from the previous tariffs the UK was subject to and the new tariffs of 10% on automobiles will certainly have a significant impact.
Tariffs: Benefits and drawbacks
Tariffs fuel inflation by raising prices for consumers and firms buying goods from other countries. They also mean domestic firms face less competition from imports, reducing incentive to become more productive. In practice, part of the cost of tariffs is likely to be borne by foreign suppliers and part by domestic consumers.
Impact on the automobile industry
UK car manufacturers are navigating how to respond in this period of uncertainty. With tariffs on parts and other UK goods still in force, the long-term implications for automotive supply chains and investment decisions remain uncertain.
This proposal will likely ease some of the uncertainty for UK-based manufacturers, including Jaguar Land Rover (JLR), which produces most of its vehicles in the UK and exports them to the US. JLR had previously paused shipments to the US in April after the first tariff announcements. They have now resumed exports to the country this month, reasoning that the reduction in tariffs will provide more "security" for the company. However, the 100,000-export ceiling is expected to become an uncomfortable constraint for manufacturers. This includes JLR whose US sales volume reached around 102,000 last year.
The price of British cars sold in the US is expected to rise due to the increase in tariffs. The consumer market for cars such as Jaguar and Land Rover tends to be high-end clientele. However, it is likely that there will be an impact on consumer demand which could in turn, put up to 25,000 jobs in the UK car manufacturing industry at risk. This would follow the trajectory in other countries, with Swedish carmaker Volvo cutting 3,000 jobs as prices begin to rise due to the US tariffs. Similarly, Stellantis, a carmaker that houses 14 brands including Jeep, RAM Trucks, Dodge, Fiat, and Maserati have temporarily laid off 900 workers amid the uncertainty.
What next?
Tariff discussions are ongoing: while the "general terms" for the agreement have been published, negotiations will continue to develop. The agreement will now need to be formalised and implemented by both governments.
But this is not a comprehensive trade deal, and there is concern that it will not be justifiable under World Trade Organisation (WTO) rules which state that countries are entitled to offer better access to partners with which they have a trade deal which substantially covers all trade. However, the UK may end up with a trade deal with the US which does not substantially cover all trade. It would be providing better market access to the US while not offering the same to other countries with which we do not have a "comprehensive" trade deal.
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