19 March 2025
Metal Tariffs to Test OEMs' Mettle
Article Summary
While they expand on 2018 measures aimed at protecting domestic industries, new metal tariffs are expected to increase costs for the automotive sector.
The 25% steel and aluminum tariffs that took effect March 12 represent a significant shift in US trade policy. While they expand on 2018 measures imposed under Section 232, aimed at protecting domestic industries, these metal tariffs are expected to increase costs for the automotive sector, ultimately leading to higher consumer prices.
Additionally, the potential for retaliatory trade actions introduces further uncertainty and poses challenges to global supply chains. As industries adjust, strategic sourcing and production shifts will be essential to mitigate any impacts.
The US imports a substantial portion of its steel from Canada, Mexico, Brazil, South Korea and Germany. With metal tariffs in place, short-term shortages are a concern as domestic suppliers struggle to meet demand, leading to upward price pressures.
Given that 15% of automotive steel is imported, even minor disruptions can significantly impact original equipment manufacturer production schedules and cost structures.
The aluminum industry is facing its own set of challenges, with a notable decline in domestic production capacity. Only four primary aluminum smelters are operational in the US, two of which are running at full capacity. The overall value of primary aluminum production has dropped 9% year over year, with transportation applications accounting for a significant portion of domestic consumption.
The US imports approximately 60% of its aluminum, predominantly from Canada, which underscores the vulnerability of the market to supply chain disruptions. High energy costs and competitive pressures from foreign producers such as China further complicate the landscape for US aluminum manufacturers.
North American automakers, especially Ford, have a strong reliance on aluminum for vehicle construction due to the region's preference for large light vehicles such as SUVs and pickups, which benefit from aluminum’s lightweight properties to improve fuel efficiency and meet regulatory standards.
With an increasing aluminum usage trajectory, US automakers are more exposed to fluctuations in the raw material’s costs. According to S&P Global Mobility data, the US is the largest consumer of aluminum in car body construction globally.
Metal tariffs: Cost implications for automakers
The 25% tariffs are projected to significantly increase costs for the automotive industry. For steel, which constitutes about 1 metric ton per vehicle, the pre-tariff cost was approximately $1,200 per metric ton. With 15% of steel used by automakers imported, the tariffs add an estimated $45 per vehicle. Rising domestic demand is expected to push prices higher, potentially adding approximately another $70 per vehicle.
In the case of aluminum, which averages about 220 kg per car, the pre-tariff cost was about $2,500 per metric ton. With 60% of aluminum sourced from imports, the tariffs are expected to increase costs by about $75 per vehicle, along with an additional $50 or so due to rising domestic prices.
Collectively, these factors could lead to an overall cost increase of approximately $240 per vehicle, translating to higher prices for consumers and potentially increasing new car prices by $1,500 or more depending on the model and material composition.
President Donald Trump had planned to double the tariff to 50% for metals imported from Canada, which he announced March 12 in response to Ontario’s decision to impose a 25% tax on electricity exports to the US. This was later halted as Ontario suspended the new charges. If a 50% tariff had been implemented, the cost implications would have been much more severe.
As automakers adjust to these increased costs, their pricing strategies will likely evolve, leading to a ripple effect across the market. The impact of tariffs varies among manufacturers based on their import dependence, domestic production capabilities and the material composition of their vehicle lines.
Steel and aluminum tariffs will introduce a new era of cost pressures and supply chain realignments for automakers operating in the US market. With other tariff actions planned, the response of the market and industry to the steel and aluminum tariffs could affect the scale of blanket tariffs the US administration is planning for April.
Understand the potential impact of tariffs on vehicle production with our light vehicle production forecast. Our analysis is updated monthly and covers 99% of global light vehicle production.
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.
S&P Global Mobility experts provide guidance on the ramification of new government policies, including tariffs, for the automotive industry