What do Trump's tariffs mean for the UK and European car industry?

Shoosmiths LLP and Heuking Kühn Lüer Wojtek, two of the worlds leading automotive legal practices provide joint insight on the recent introduction of automotive tariffs and what car manufacturers and their supply chains can do in response.

Introduction

The introduction of 25% tariffs on automotive vehicles entering the US marks a pivotal moment for the UK and European automotive sector. While these tariffs pose significant challenges, they also present unique opportunities for the European and UK automotive sector.

What tariffs have been introduced?

US-President Trump has implemented threats by introducing 25% tariffs on all automotive vehicles and components entering the US including from the UK and Europe, with 10% tariffs as a minimum on all other UK imports and 20% tariffs on all other EU imports.

The automotive sector has historically been one of the most globalised industries with interconnected supply chains meaning vehicles are designed and developed in one country, their components produced in others, and they are assembled in yet another country.

The increase in tariffs will have significant consequences for both manufacturers and existing supply chains in the automotive industry. Even OEM that already produce in the US rely on suppliers from neighbouring countries like Canada and Mexico and will see tariffs hit their supply chain. Those UK and European manufacturers that do not have a local manufacturing presence in the US will be hardest hit.

Some 16.9 per cent of UK car exports were to the US last year, representing a total of more than 101,000 units worth GBP7.6 billion, while the EU exported finished passenger cars and light trucks (under 5 tonnes), worth EUR 39 billion or some 750,000 units.

What can manufacturers and their supply chains do in response?

Whilst disappointing, the tariffs are not unexpected. Many manufacturers have been putting in place contingency plans for some time. Both Shoosmiths and Heuking Kühn Lüer Wojtek attended the IBA Automotive conference in Munich when tariffs were announced with many manufacturers publicly acknowledging that preparatory steps had been taken.

We look at what automotive OEM and their supply chains can do in response to the tariffs and in light of the potential for reciprocal tariffs being implemented globally:

1. Localisation: Those that do not have a presence in the US will consider localisation of manufacturing operations, including reallocation of product lines, to avoid tariffs in the mid-long term. Those manufacturers that do have a presence will need to consider localisation of their supply chains. The reallocation of production has to planned and implemented carefully, taking into account regulatory, contractual and factual aspects such as conformity of production, quality and certification.
2. Supply chain management and risks: Tariffs will drive up costs and place pressure on supply chains. The announcement will create a greater need for automotive companies to fully understand and map their supply chains, particularly where components are amalgamated by one supplier for onward sale. Already a lot of manufacturers are looking at passing on price increases to customers but suppliers to the large automotive manufacturers are likely to increase their own prices seeing an increased risk of supply chain disputes. Smaller suppliers could be hit the hardest if cost pressures impact profit margins and increasing localisation hits demand. It is more important than ever for manufacturers to put ensure adapted supply chains and many tier 1 and tier 2 suppliers will also need to consider the impact of localisation. However, the regulatory aspects of changes in the supply chain must be considered very carefully.
3. Restructuring: In line with pressure to reallocate and adapt production and supply chains, the legal challenges of organizational and contractual restructuring have to be considered carefully. Shoosmiths’ employment team have already highlighted the potential impact of workforce restructuring in 2025 as a consequence of falling demand Navigating automotive workforce restructures amid falling UK car production. The recent announcements are likely to exacerbate these risks. Heuking insolvency and restructuring teams have already had a busy year due to increased demand for advice in the German automotive industry in particular.
4. Opportunities for a renewed European/UK focus: Research by Startline Motor Finance found almost six out of 10 (59%) drivers say they are less likely to buy a car from a country imposing tariffs. There is cautious optimism that the tariffs could result in consumer demand moving away from US manufactured vehicles leading to renewed opportunities in the UK/Europe after 2024 resulted a number of factory closures across the continent.
5. Corporate investment: Finally, longer-term options include manufacturers and their supply chains partnering with US firms or setting up joint ventures to develop a US footprint, which could also help with reducing costs including shared distribution networks and warehousing.