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On the Feasibility, by Means of Customs Duties, of an Entirely (or Almost Entirely) Made-in-the-USA Automobile
Published online by Cambridge University Press: 29 September 2025
Abstract
One of the objectives of the Trump administration’s economic policy is to revitalize the American industrial fabric and create a large number of high-paying blue-collar jobs. However, the main instrument used to achieve this goal – tariff protection – is a point of contention. We discuss the relevance of the recently introduced policy for an emblematic sector: the automotive industry. The latter operates highly integrated production chains where intermediate products frequently cross borders to circulate within a ‘Big Factory’ encompassing production sites located mainly in Mexico, Canada, and the USA, but also in other countries. The imposition of a 25% tariff on finished cars and their parts could lead to significant disruptions for consumers and producers alike. The lessons learned from the automotive sector retain much of their relevance for other areas of the US economy.
In the absence of a nationwide adequate solution, the lot of displaced workers could be improved through place-based workforce transition programmes limited to disadvantaged areas. Industrial policy measures targeting disadvantaged communities and regions could also be envisaged. In this case, however, it would be necessary to deploy a variety of instruments adapted to the circumstances and to take into account, as far as possible, the interests of trading partners in order to avoid conflicts.
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- Special Issue Article
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- © The Author(s), 2025. Published by Cambridge University Press on behalf of The Secretariat of the World Trade Organization.
Footnotes
Holder of a PhD in Economics from the University of Lausanne (HEC), served as Swiss Ambassador to WTO and EFTA from 2016 to 2023. He notably chaired the WTO General Council and the OECD Trade Committee. He is also a Member of the World Trade Institute (WTI) Advisory Board.
References
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8 The United States has comprehensive free trade agreements in force with 20 countries: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore, Office of the United States Trade Representative (USTR), Free Trade Agreements, https://ustr.gov/trade-agreements/free-trade-agreements.
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18 At its maximum, the credit is calculated in such a way that a manufacturer assembling a car in the United States with 85% US content or content originating in Mexico and Canada under the terms of the USMCA does not pay customs duties on the production of this vehicle during the first year. If a manufacturer assembles a car in the United States with 50% US or USMCA content and 50% from other suppliers, only 35% of the imported parts will be subject to duties in the first year, not the full 50%. The White House, ‘Fact Sheet: President Donald J. Trump Incentivizes Domestic Automobile Production’, 29 April 2025, www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-incentivizes-domestic-automobile-production/.
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