Update provided for general information only. It does not constitute legal advice and no reliance may be placed on it. Predicting future geopolitical and macroeconomic changes is increasingly a game of chance. While the UK became the first country to negotiate a trade deal with the US since President Trump unveiled his so-called reciprocal tariffs, whether further changes will follow, what the implications will be for the automotive sector and how this will affect different parts of the supply chain, including retail, remain uncertain. That said, based on the NFDA’s current understanding, this update provides a short member briefing on the possible impacts of US tariffs relevant to the automotive sector. It also calls on the UK government to do more to ameliorate potential impacts, including on EV adoption, the benefits of which are clear, rather than simply leaving the market (albeit one used to weathering various storms) to absorb the effects. 1. Current situation on US tariffs In April 2025, President Tump imposed a 25% tariff on imported passenger vehicles, light trucks and certain automobile parts (including engines, transmissions and electrical components) which would apply to all imports including those from the UK. The United States also imposed a 25% tariff on steel and aluminium imports from the UK (while tariffs on imports from other trading partners are now at 50%) subject to the UK conforming to relevant aspects of the UK-US Economic Prosperity Deal announced in May ( EPD ). The recently announced EPD includes, from 30 June, certain tariff relaxations and exemptions for the UK automobile sector including lower tariffs (from 25% to 10%) for up to 100,000 UK-manufactured vehicles annually. For automotive parts, the tariffs have also been adjusted and are now at 10% (as opposed to 25%), provided that these are products of the UK and for use in automobiles that are products of the UK. NB: The terms provide that only “products of the United Kingdom” or parts that “are for use in automobiles that are products of the United Kingdom” can benefit from these lower tariffs – this means that exporters and manufacturers would need to be mindful of the “origin” of their products (which is basically a determination of where the product is said to originate from for tariff purposes). This could be an important consideration for a product such as automobiles which have tiered and global supply chains and may cross-borders several time as part of the assembly process. This appears slightly better news for a rather limited group – UK-based manufacturers exporting to the US – as it spares them the 25% tariffs, which would otherwise apply; however, it remains a far cry from the 2.5% tariffs to which these exports were previously subject. So, not forgetting the fact much manufacturing occurs outside the UK, there may still be some ramifications for UK manufacturing, albeit perhaps not quite so significant as might have been the case absent the EPD. Of course, one or two brands might look to shift production, but it is not unreasonable to surmise that the lack of confidence in the sustainability or consistency of any political deal in the longer term may lead many to stay put. For UK retailers, conditions which facilitate more continuous/less problematic supply to the US will, in theory, reduce pressure on them to absorb excess capacity and bear increased costs etc., although the situation might best be described as “not as bad as originally anticipated” as opposed to “good”. It is clear that the consequences are multi-faceted and issues such as trade diversion and retaliatory tariffs from other economies etc. are still developing. 2. Impact of tariffs While UK retailers are not directly subject to tariffs levied by the US or other economies, tariffs on automobiles, including EVs, batteries and other automobile components are beginning to reshape supply chains, OEM pricing strategies and market priorities. These shifts could have significant implications for retailers. We have set out some of these considerations below: Global OEMs : Despite its high-tariffs, the US – with its higher-profit and volumes – will remain a key market for global OEMs, including those based in the UK. OEMs may explore solutions to adapt to higher costs through supply chain re-engineering, cost allocation across different global markets as well as reducing supply to lower priority markets. – In the short term, OEMs may look to spread tariff-related cost increases across their global operations including the UK which may lead to price rise pressures on retailers and consumers, which in turn may shift consumer demand towards used vehicles. – In the medium to long-term, OEMs may consider supply chain reengineering options to minimise tariff exposure. This could be in the form of shifting manufacturing and investment to US facilities and/or other jurisdictions subject to lower tariffs. This could impact the supply of vehicles to the UK, including through the availability of fewer models and longer lead times for product delivery. That said, even if OEMs believe that any punitive tariff arrangements will be in place for as long as President Trump is in office (and putting aside any likely changes while he is in office), it is incredibly difficult to pivot quickly to mitigate the costs of the tariffs being incurred (and passed on to customers) to any substantial extent. UK OEMs: For UK OEMs, the impact of tariffs is multi-faceted, with implications for exports, domestic sales and manufacturing: – UK OEMs supplying directly to the US will be directly impacted by the current tariffs on automobiles with possible follow-on effects on UK prices, domestic manufacturing and employment. While the EPD offers some relief to UK OEMs exporting to the US, they are still subject to greater costs than was the case six months ago. So, in the shorter term, UK OEMs may look to spread tariff-related cost increases elsewhere. – The impact of tariffs on UK OEM exports may also lead to indirect pressure on downstream players. Even if vehicles meant for US markets cannot easily be redirected (noting differences in configuration), component parts originally allocated for US-related production could be rerouted to the UK and other markets resulting in excess supply. In the long term, UK OEMs may also seek to re-engineer supply chains, possibly drawing manufacturing out of the UK, to benefit from a more preferential tariff regime, albeit this is a gamble (and noting that some manufacturing previously moved from China to so-say tariff-benign jurisdictions have been caught out). Additionally, if UK OEMs look to prioritise and increase UK factory output (to compensate for the loss of exports), in the absence of increased domestic demand, this may result in pressure on UK retailers to absorb the excess volumes through increased targeting, which may impact profit margins or force price increases. – The tiered and global nature of automobile supply chains means that UK OEMs may be impacted by tariffs anywhere along the supply chain. For example, if the EU imposes any retaliatory tariffs (on all sources of imports i.e., MFN-level), component parts that are imported from one jurisdiction into the EU would be subject to tariffs. Where these inputs are used in UK manufacturing, these increased costs are likely to be passed downstream leading to higher prices on UK-manufactured automobiles. Trade diversion : Tariffs on automobile parts, particularly tariffs on EV batteries (imposed by both the EU and the US) can result in redirection of exports meant for US and EU markets to other markets including the UK. UK EV battery manufacturers may see increased competition from competitively priced Chinese EV batteries. While this may lead to cheaper inputs for domestic UK EV manufacturers, any overdependence on imports may mean manufacturers could be confronted with supply chain disruptions on account of the changing trade environment. 3. Possible remedies As set out above, the repercussions on the changing tariff landscape on UK retailers are multi-faceted and any solutions considered must be cognizant of the changing trade environment, the global nature of supply chains and the UK’s post-Brexit realities. While the NFDA may continue to monitor trade developments, engage with UK trade authorities to advocate for favourable trade terms and exemptions and engage with members to understand market concerns, other solutions that may be explored include: With respect to trade diversion, particularly on input products, into the UK, the domestic industry can consider trade remedy measures i.e., duties imposed by the UK to address unfair and increased imports. Imposed pursuant to an investigation, such duties could help “level the playing field” for UK input manufacturers facilitating a more predictable domestic supply of vehicle inputs. Seeking support from the UK government to promote end-to-end manufacturing in the UK (for example, the Automative Transformation Fund which supports financing and research to support a UK-based electrified automative supply chain). Advocating that the UK government takes positive steps – in areas where it has more control – to support the UK automotive sector and enhance consumer confidence, including on EVs. 4. What’s next? In light of the above headwinds, it has been disappointing to see the UK government scale back domestic support for the sector, including those which align growth with environmental objectives, most recently with regard to the scrapping of the Rapid Charging Fund, as better charging infrastructure (alongside consumer incentives elsewhere) is essential to support the growing number of EV drivers. The automotive retail sector plays a key role in guiding consumers through the buying journey, but – without the right support locally and in the face of other challenges such as those outlined above – consumer confidence remains at risk. The government should therefore work closely with the automotive retail sector and its representatives – as the group closest to consumers – to ensure that future initiatives are practical, commercially viable, and meet the needs of both motorists and businesses. While the UK government has little sway over US tariff policy, it still has enormous influence in terms of creating conditions that will drive confidence and growth domestically (beyond just reducing interest rates). In the automotive sector, the NFDA will continue to work with government to help target support where it is most needed, and to advocate for fairer terms between OEMs and retail networks to help avoid the latter being burdened with excessive demands at a time when more flexibility at the retail level is essential. If you have any questions or require further information regarding tariffs, trade remedies or their implications for the sector, please let us know, and we will liaise with our external legal advisers, TLT LLP.