Any hopes and fears among the UK automotive industry as to what the Chancellor’s Spring Statement on 25th March might hold were swiftly dissipated – not only by a lack of any automotive announcements in the Statement, but a far bigger threat that immediately emerged from across the Atlantic.
Within hours of Rachel Reeves sitting down in the House of Commons US President Donald Trump finally announced his long threatened automotive tariffs, part of an overall tariffs programme set to commence on 3rd April that has sent economic shockwaves around the world – some analysts predict that if fully enacted the programme could wreck any monetary plans by the Chancellor, taking 1% off the UK’s GDP and wiping the 9.6bn Rachel Reeves has factored into her future plans.
The latest announcement from the President will see all vehicles imported into the USA subjected to 25% tariffs, and by May these tariffs will also extend to automotive components.
All observing the situation agree that the tariffs are bad news. A manufacturer faced with 25% of extra costs will have the choice of passing them on to the consumer, which will make its products less attractive purchases, or absorbing the cost with big consequences for its revenue.
European and Asian manufacturers have unsurprisingly reacted with horror, and the UK is right in the middle of the issue – vehicles made in Britain are exported first and foremost to the European Union, and then to America, more than 100,000 of them in 2024.
Executive stress
All manufacturers in the UK are likely to be affected by the move, with higher-end companies such as JLR taking the biggest hits – Range Rover products in particular are very popular in the US and of the more than 116,000 cars JLR sold in 2024 to US buyers, two thirds of them were built in its UK plants. Other top brands such as Aston Martin and Bentley are also facing major cost hits.
Economist Professor David Bailey of the Birmingham Business School told the BBC that the West Midlands will likely be the area of the UK worst affected by the tariffs, JLR and Bentley both having major plants in the region, and that it is a very worrying time for the UK car industry.
However the potential effects go much further than the cars of high-profile brands selling into America. The automotive industry is truly global – many non-US manufacturers build cars in America, including BMW, Volkswagen and Toyota, while US manufacturers build cars in Mexico and Canada, and are as a result facing tariffs to bring their cars into their home country.
Yet the real critical factor could be not the cars, but the parts in them. All cars, including those built in America, use components made by a wide network of specialist producers which are often located in surprising locations around the globe.
According to some reports less than half the components for the SUVs built by BMW in Spartanburg, California are US-made – topped by the engines which are imported from BMW plants in Europe. The plant is responsible for half a dozen models in the X SUV range and even BMW’s own website describes Spartanburg as assembling, rather than building, the cars it produces.
Many US manufacturers use parts imported from Canada and Mexico and some analysts have calculated that imposing tariffs on such parts could produce cost increases of between $4,000 and £10,000 per US-built car.
The hidden industry
Again, it’s an issue that fully involves UK industry; just a few miles from where these words are being penned an innocuous industrial estate in a Welsh market town hosts companies producing such vital components for global manufacturers, such as seat parts for Volvo. There are many more specialist component manufacturers across the country forming vital elements of the automotive supply chain – all face financial consequences from the tariffs fall-out.
Trump has stated that the imposition of tariffs will increase investment and employment in the US auto industry, leading to what he described as “tremendous growth,” and foreseeing a situation where manufacturers seek to avoid tariffs by setting up production in America and only using locally made parts. But even if such a scenario was to happen it would take many years to come to fruition – long after the end of Trump’s presidency.
Many industry observers believe the tariff measures will spectacularly backfire. Stuart Masson of The Car Expert summed up the views of many when he wrote that with most US cars relying on components from outside America, their costs would inevitably rise; “Driving up tariffs on non-US cars and parts will make all cars more expensive for American customers, who will have to pay for this.”
Masson argues that the move will drive more car buyers around the world towards Chinese manufacturers, and further isolate America from the rest of the global automotive industry. And as one example, a survey conducted in the wake of the announcement by Startline Motor Finance found six out of 10 UK buyers saying they would boycott purchases from countries trying to impose tariffs.
Global production
It’s difficult to see any winners from the plans. To give just one example the BMW output from Spartanburg includes the X3, X4, X5, X6, X7, and XM Sports Activity Vehicles and Coupes and their variants, all for global markets and among many US-made cars exported around the globe.
Not only could such vehicles be impacted by tariffs applied to the imported components used in them, they could be made potentially even more expensive to buyers outside the US if for example Europe responds to Trump’s move by imposing its own retaliatory tariffs.
This would create a scenario of BMW’s X models costing more to buy for both US and global consumers, which could lead to fewer sales slowing production and affecting US jobs in Spartanburg.
The response to the tariff threat has varied immensely – several European countries, and Canada, are advocating strong retaliation against the US, but this has drawn ire from some. Ineos, one of the youngest automotive manufacturers on the market with the US forming a large part of its prospective sales, stated that it was “outraged” by the situation, blaming the European Union.
“President Trump has been very clear on his intention to implement tariffs on the auto industry – he has been asking for fairness and reciprocity and yet European leaders have not come to the table to negotiate a better solution,” Ineos stated.
“This is what happens when politicians sit on their hands,” said Lynn Calder, CEO of Ineos Automotive. “As a growing EU-based automobile brand, we are vulnerable to tariffs, and we need our politicians to support our business, our jobs and our economies. We need urgent and direct political intervention on tariffs.”
Waiting game
In the UK manufacturers generally are holding their thoughts for now, waiting to see what happens next. In contrast to the aggressive response in Europe, the British Government has taken the stance of trying to negotiate exemptions to the tariffs, a view supported by auto industry body the Society of Motor Manufacturers & Traders.
“The UK and US auto industries have a long-standing and productive relationship, with US consumers enjoying vehicles built in Britain by some iconic brands, while thousands of UK motorists buy cars made in America,” said SMMT chief executive Make Hawes.
“Rather than imposing additional tariffs, we should explore ways in which opportunities for both British and American manufacturers can be created as part of a mutually beneficial relationship, benefitting consumers and creating jobs and growth across the Atlantic,” Hawes added.
The situation remains highly volatile – not least because while stating firmly that the tariffs are “permanent” Trump has regularly changed his mind on a whim. But whatever the future holds, the automotive industry, not just in the UK but globally, agrees that the tariff question is the biggest challenge it has faced since the Covid pandemic.
So the answer to our question? Yes, UK motorists should be worried about the effects of the tariffs, but so should everyone around the world – especially in America…
