What is Section 122 and why does it apply to automobiles?
Section 122 of the Trade Act of 1974 authorizes the President to impose temporary import surcharges of up to 15% for 150 days to address large and serious balance-of-payments deficits, with broader authority invoked under emergency powers to set higher rates. The 25% tariff on motor vehicles and auto parts was imposed to address the trade deficit in the automotive sector.
The U.S. imported approximately $275 billion in vehicles and auto parts in 2024, making the automotive sector one of the largest contributors to the merchandise trade deficit. Major exporters include Mexico, Japan, Germany, South Korea, and Canada.
The tariff applies to finished passenger vehicles, light trucks, and a broad range of auto parts including engines, transmissions, body stampings, and electrical components. This represents a significant shift from the prior MFN rate of just 2.5% on passenger vehicles.
Which vehicles and HTS codes are affected?
Passenger motor vehicles fall under HTS heading 8703. This includes sedans, SUVs, and crossovers classified under subheadings such as HTS 8703.23.00 (vehicles with spark-ignition engines of 1,500-3,000cc) and HTS 8703.24.00 (vehicles with engines over 3,000cc). Electric vehicles classified under HTS 8703.80 are also covered.
Light trucks and cargo vehicles under HTS 8704 face the Section 122 rate as well, though these already carried a 25% MFN rate (the "chicken tax"). The Section 122 tariff effectively doubles the rate for trucks to 50% when combined with MFN.
Auto parts covered include engines (HTS 8407-8408), transmissions (HTS 8708.40), body stampings (HTS 8708.29.50), braking systems (HTS 8708.30), and electrical components (HTS 8708.91-8708.99). The parts coverage is broad and importers should verify each specific HTS subheading.
Are USMCA countries exempt from the auto tariff?
USMCA-qualifying vehicles and parts may receive preferential treatment, but the requirements are stringent. Under USMCA, passenger vehicles must meet a 75% regional value content (RVC) threshold to qualify for duty-free treatment. This is significantly higher than the 62.5% threshold under the prior NAFTA agreement.
Additionally, USMCA requires that 70% of a vehicle's steel and aluminum content originate in North America, and that a certain percentage of the vehicle's value be produced by workers earning at least $16 per hour (the labor value content provision).
Vehicles and parts that do not meet these strict origin requirements are subject to the full Section 122 rate. For example, a vehicle assembled in Mexico but using a high percentage of Asian-sourced components may fail the RVC test and face the 25% tariff. This is particularly relevant for Japanese and Korean automakers with Mexican assembly operations.