Here comes "exemption" again! Reports say the US is preparing to lower tariffs on imported auto parts.

After continuous lobbying, the U.S. automobile industry is about to receive tariff reductions, which not only directly benefits automakers, but also once again confirms the "much ado about nothing" nature of Trump's tariff policies.

According to media reports on October 16, the U.S. Department of Commerce plans to announce an extension of the tariff exemption arrangement for imported auto parts for automakers by five years; originally, this clause was set to terminate after two years. This arrangement allows car companies to reduce the tariffs paid on imported auto parts.

Citing sources, the report states that this policy could be announced as early as Friday, and the details will be disclosed in government documents implementing import truck tariffs. After the news broke, General Motors' stock price rose as much as 3.8% after hours, and shares of Ford and Stellantis also saw short-term gains.

This move is the latest adjustment in a series of tariff measures by the Trump administration. Although tariffs on imported vehicles, parts, and raw materials such as steel and aluminum have increased costs for American automakers, exemptions and offset policies like this one have become key tools to counter the negative impact of tariffs.

Automakers Lobby for Months to Secure Reductions

This concession is the result of months-long lobbying by automakers such as Ford and General Motors. American automakers are facing the rising cost pressures brought about by Trump's tariffs on imported vehicles, parts, and raw materials like steel and aluminum.

Under the soon-to-be-extended policy, auto manufacturers can offset a portion of the 25% tariff imposed on imported parts.

Automakers that manufacture and sell complete vehicles in the U.S. can apply for a tariff exemption equivalent to 3.75% of the value of U.S.-made vehicles. Originally, the exemption rate was set to drop to about 2.5% after one year and be fully canceled after two years. Now this arrangement will be extended to five years.

Ford CEO Jim Farley once said that considering differences in labor and currency costs, the U.S.-Japan Trade Agreement gives competitors such as Toyota a cost advantage of thousands of dollars per vehicle over comparable models made by Trump in the U.S.

Therefore, any form of tariff reduction is crucial for maintaining the competitiveness of homegrown American automakers.

A “Much Ado About Nothing” Tariff War

This extension of auto industry tariffs is actually a microcosm of a broader phenomenon—the actual impact of the U.S. trade war has been far less severe than claimed, with "exemptions" being a key factor.

WallstreetCN previously noted that Citi's September research report showed that the actual effective U.S. tariff rate is only about 9%-10%, far below the theoretical level of about 18%, mainly due to policy-driven "exemptions and exceptions."

The report pointed out that from 2019 to 2021, following the 2018 U.S.-China trade war, 957 companies submitted 163,522 tariff exemption applications, with an approval rate as high as 61%.

The impact of tariffs has been less than expected, which explains why the much-discussed "tariff inflation" has yet to materialize on a large scale.

Citi's report noted that although the prices of items in its tracked "tariff basket" have rebounded, the increase remains modest. This is partly because companies actually bear less of the tariff shock than anticipated, and partly thanks to the buffering effect of inventories.

Citi analysts claim that the current "much ado about nothing" status of the trade war is favorable for risk assets and leaves room for the Federal Reserve to cut interest rates when the labor market is weak. But investors should beware of two major risks:

First, inventory that companies built to circumvent tariffs is running low and may drive up goods inflation within the next one or two months.

Second, if rerouted trade continues to grow, it could prompt new rounds of tariffs targeting countries such as Vietnam and Thailand.

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