President Donald Trump's decision to impose an additional 10% tariff on Chinese imports is expected to have a limited impact on U.S. vehicle imports but could significantly affect auto parts, potentially raising vehicle prices for consumers.
According to the U.S. International Trade Commission, the U.S. imports between $15.4 billion and $17.5 billion worth of transportation goods from China annually, as quoted on CNBC. This includes approximately $9 billion to $10 billion in auto parts and accessories for vehicles, tractors, and other special-purpose vehicles.
Impact on U.S. Automakers
The biggest impact will be on two major U.S. automakers — Ford F and General Motors GM — whose China-made models account for most of the affected vehicle imports. The Ford Lincoln Nautilus and GM Buick Envision comprised 95% of the 88,515 China-made vehicles sold in the U.S. last year.
Other carmakers such as Volvo, which is owned by China's Geely and its electric vehicle spin-off Polestar, import far fewer vehicles to the U.S. They've also adjusted production plans to reduce the number of vehicles being imported from China. This shift has been influenced by the Biden administration's 100% tariff on China-made electric vehicles imposed last year.
China-made vehicles represent only 0.6% of the 16 million new cars sold in the U.S. in 2024 — comparable to imports from the UK, Sweden, and Slovakia. In contrast, Canada and Mexico accounted for 23.4% of U.S. vehicle sales, making tariffs on these countries a much larger potential concern for the industry.
Effect on the Auto Parts and EV Supply Chain
While vehicle imports from China are minimal, auto parts imports are substantial, ranging from $15 billion to $20 billion per year, according to the U.S. International Trade Commission. China also plays a crucial role in the battery and energy storage supply chain, particularly in lithium iron phosphate (LFP) batteries, which are widely used in utility-scale energy storage.
It remains unclear how much the new tariffs will impact EV batteries and raw materials. However, many electrified vehicles in the United States rely on Chinese components. According to the National Highway Traffic Safety Administration, some models incorporating significant Chinese parts.
They include the Genesis G80 EV (25%); Hyundai Kona EV (50%) and Hyundai Ioniq 5 N (30%); Kia EV9 (35%) and Niro Electric (25%); Nissan Ariya EV (40%); Toyota bZ4x EV (20%) and RAV4 PHEV (20%); and Volkswagen ID Buzz EV (25%).
Impact on Vehicle Pricing and Sales
Automakers need to decide whether to pass the increased costs onto consumers, change their supply chains, or absorb the expenses. If companies raise prices, it could negatively impact sales, as new vehicle prices remain historically high at around $50,000, according to Cox Automotive, as quoted on CNBC.
If vehicle prices rise further, it could hurt U.S. new car sales, which S&P Global Mobility had previously forecasted to reach 16.2 million units in 2024 before the new tariffs were announced, as quoted on CNBC.
Auto ETFs in Focus
The above-mentioned scenario puts focus on exchange-traded funds like First Trust S-Network Future Vehicles & Technology ETF CARZ and First Trust Nasdaq Transportation ETF FTXR.
CARZ in Focus
The underlying S-Network Electric & Future Vehicle Ecosystem Index constituents are chosen by selecting the eligible Pure-Play companies in descending order of float-adjusted market capitalization until 100 constituents have been selected. The top three holdings include Tesla, Alphabet and Apple. The likes of Toyota, Ferrari, Rivian, Volvo, Honda, Ford, Nissan, Geely, Hyundai also have exposure to this fund. The CARZ ETF charges 70 bps in fees.
FTXR in Focus
The underlying Nasdaq US Smart Transportation Index is a modified factor weighted index, designed to provide exposure to US companies within the transportation industry. Tesla (13.32%), General Motors (7.56%) and Ford (6.25%) are some of the fund's biggest holdings. The ETF charges 60 bps in fees.
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