President Donald Trump will sign an executive order Tuesday that aims to soften the blow of new tariffs on auto parts by offering an offset to automakers that finish their cars in the U.S., according to White House officials.
The officials also said the administration would leave its 25 percent tariff on imported vehicles and parts in place, but would tweak the language to make sure importers don’t pay a levy on both imported steel or aluminum, and on parts.
The tariff offset would be available for two years to encourage the carmakers to build or expand plants in the U.S., the officials said on a call with reporters. One official said the offset would create tens of thousands of jobs in the U.S. industry.
“That’s more than enough time,” the official said, adding that the offset would be based on tariffs already paid and not be a cost to the government.
The executive order will reimburse automakers for tariffs on parts up to an amount equal to 3.75 percent of the value of the domestically assembled car for one year. The reimbursement would fall to 2.5 percent the next year and then be phased out. Foreign companies would be eligible for cars they finish in the U.S.
The officials added that the offset amount would apply to production beginning April 3, 2025, and will allow automakers to claim it retroactively based on domestic production.
A White House official said giving automakers more time to adjust to tariffs will allow them to shore up supply chains and incentivize them to set up shop in the U.S.
The official described the math behind the offset calculation as based on the manufacturer’s suggested retail price. Makers of cars finished in the U.S. would be eligible for up to 15 percent of the MSRP of those cars in the first year and 10 percent in the second year. That 15 percent would be applied against the 25 percent levy, to yield 3.75 percent the first year and 2.5 percent the second year.
The offset is only available on the finished product, but the automakers can allocate it to their parts suppliers. The exemption for parts imported under the United States-Mexico-Canada Agreement on trade remains in place and is unaffected by the change, the official said.
The administration put a 25 percent tariff on imported vehicles in place early this month. An additional 25 percent tariff on auto parts will begin on Saturday.
Automakers have been pressuring the White House to lay off its tariffs for the industry. The tariffs would “set off a domino effect that will lead to higher auto prices for consumers, lower sales at dealerships and will make servicing and repairing vehicles both more expensive and less predictable,” six auto organizations wrote in a letter to the administration.
Trump had previously provided automakers a one-month exemption on new tariffs in March.
“Most auto suppliers are not capitalized for an abrupt tariff induced disruption. Many are already in distress and will face production stoppages, layoffs and bankruptcy,” the auto groups said.
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