US Tariff Changes and Forecast Implications: 2025 Assumptions

As President-elect Donald Trump's potential US tariff policies loom, S&P Global Mobility has updated its baseline assumptions for its vehicle forecasts. Along with other global and regional economic, regulatory and market conditions, we have factored these new tariff assumptions into our December 2024 vehicle forecasts.

Anticipated US tariff changes

By mid-2025, S&P Global Mobility expects the US will implement a universal tariff on goods from outside North America. We currently assume Canada and Mexico will be exempt from these tariffs as part of the governing US-Mexico-Canada Agreement (USMCA), though the Trump transition team has indicated it may impose a 25% tariff on Canada and Mexico. This could evolve as the countries review this trade agreement in mid-2026.

A universal tariff would presumably cover all goods, including autos and auto parts, based on the December 2024 round of S&P Global Mobility vehicle, production, powertrain and sales forecasts. Our current assumption is for a universal standard 10% tariff, up from a typical 2.5%.

We expect that goods from mainland China imported to the US will see a new 30% tariff (up from 21%), with the existing 102.5% tariff on electric vehicles from mainland China remaining in place. We expect this tariff will not be used as a bargaining tool that Trump would revoke if he obtains other concessions but would instead become a permanent tariff.

A period of policy uncertainty

Trump has said he will act quickly after he takes office on Jan. 20, 2025. We expect an extended period of heightened policy uncertainty, which will have real-world impacts on economies. Even if he does not act on some of the more extreme tariff proposals, the environment is not likely to be clear and stable.

A heightened period of policy turmoil and uncertainty is expected for as much as a year, possibly longer. This uncertainty itself can be as difficult for the automotive industry as the impact of tariffs when they arrive.

Trump will also likely make changes to US emissions requirements, and we expect significant reductions in battery-electric vehicle (BEV) volumes/market share and adjustments in electrification mix. In 2030, we expect the US BEV mix to reach about 30%, compared with prior projections for about 40% in that year.

The December 2024 forecast update reflects a mix of upgrades in the extreme near-term forecast and significant downgrades for various regions in the intermediate term. Our downward revisions for 2025 and 2026 reflect some negative impacts of broader tariff actions under the incoming Trump administration, along with shifting market demand and inventory management challenges, among other factors.

US tariff changes would impact virtually every country's economy

S&P Global Mobility expects both positive and negative impacts on the US and global vehicle markets and economies as a result of Trump's policies. A universal tariff will affect virtually every country's economy and there are risks associated if the administration takes this step. However, there is also an opportunity for the US light-vehicle market to see some benefits.

Take Europe and Asia, for example. Europe is a major exporter to the US. Its key manufacturing economies will see the biggest impact, and this could weaken internal markets across the region. With European manufacturing already declining, the impact on jobs and public sentiment could worsen.

Some ASEAN markets have benefited from resourcing out of mainland China, but expected slower US exports and a slower China market in the near term could delay auto sales recovery.

Some new policies may provide economic relief

In the US, we expect several of Trump's policies to provide some relief. We view proposed income tax breaks and corporate tax cuts as potentially positive changes.

Specific to the US light-vehicle market, the administration's expected rollbacks of emissions and fuel economy regulations will likely reshape the mix of vehicles being offered in the US. The lowered regulatory requirements will mean vehicles with lower levels of electrification because of less pressure to move to BEVs as quickly.

That change should enable automakers to offer more affordable propulsion solutions, easing pressure on vehicle prices. We continue to expect growth for BEVs, but with lower penetration in the medium-term due to eased regulations.

Because of expected lower vehicle prices, we forecast that medium-term US light-vehicle sales will improve.

The impact of a global light-vehicle sales tariff may peak in 2026

Because the tariffs would not be in place for all of 2025, S&P Global Mobility expects global light vehicle sales impacted more heavily in 2026, with smaller impact in later years. Compared with our November 2024 forecast, we expect global light-vehicle sales to decrease by about 793,000 units in 2025, with a peak impact of 1.05 million units in 2026.

Downside risks of tariffs: Potential trade war, inflation

A US universal tariff policy could, however, lead to an aggressive trade war. In that case, it's likely that inflation go up, while interest rates will not decrease as much as expected.

Countries exporting to the US will see a slowdown in their manufacturing industries, many of which are already in a slump. This would affect mainland China, Europe, key Asian export markets and most emerging markets.

S&P Global Market Intelligence expects the world GDP forecast for 2025 to be lowered because of these revised assumptions, with mainland China taking the biggest hit - which will affect countries exporting to mainland China as well.

Though opportunities for US light-vehicle sales are likely due to lower vehicle prices from these regulatory changes, we also expect the US GDP forecast will be lowered for the next three to four years, compared to our November 2024 economic forecasts. As the cost of goods increases and the market adjusts, we expect the US to see higher than previously expected inflation initially, with interest rates likely to be higher across the forecast than in earlier projections.

he S&P Global Mobility AutoIntelligence service provides daily analysis of global automotive news and events. We deliver timely context and impactful analysis to navigate the fast-moving industry.

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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.