INSIGHT: US auto, metal tariffs persist, threaten chem demand

HOUSTON (ICIS)–The tariff deal that the US has reached with China did not eliminate the duties on steel, aluminium and auto parts, all of which could lower automobile production and reduce demand for the plastics and chemicals used to make the vehicles.

• The US maintained its 25% sectoral tariffs on Chinese imports of steel, aluminium and auto parts. It levies the same tariffs on imports from much of the world.
• Imports from Canada and Mexico can avoid the tariffs if they comply with the nations’ trade agreement, known as the US-Mexico-Canada Agreement.
• Oxford Economics expects US auto production will fall by -2.0% to -0.9% year on year in 2025. Fitch Ratings, a credit rating agency, lowered its US auto sales forecast by 6.7% and warned of production cuts.

WHY ARE AUTOS IMPORTANT TO CHEMS
Automobiles made in North American contain an average of 198 kg of plastic, according to ICIS, making them an important end market for producers.

Polypropylene (PP) is the most commonly used resin in North American automobiles followed by polyurethanes and nylon, as shown in the following charts.

In addition, automobiles are large end markets for paints and coatings.

In all, the typical automobile has nearly $4,000 worth of chemistry

WHAT CHEMS SAY ABOUT AUTOS
Celanese, whose Engineered Materials segment is heavily dependent on autos, stressed the uncertainty about the effects that tariffs will have on this key end market during the second half of the year. It will prepare by reducing inventory, controlling costs and lowering operating rates if warranted by demand weakness.

Polyurethanes producer Huntsman is seeing automobile build rates drop low-single digit percentages. By the time order patterns trickle through original equipment manufacturers (OEMs) and down to chemical companies, Huntsman is seeing double-digit drops in some order patterns.

AdvanSix warned that uncertainty surrounding tariffs is affecting the market for nylon and other engineering plastics.

Axalta Coating Systems, which makes auto paint, warned of a $50 million gross annualized charge from tariffs.

Axalta lowered its 2025 sales guidance to $5,300-5,375 million from $5,350-5,400 million. Earnings guidance remained unchanged.

Steps that Axalta could take to offset a portion of that hit include insourcing production capacity to domestic plants; sourcing raw materials locally; reformulating products; managing strategic inventory; and executing pricing actions.

TARIFFS RAISE AUTO COSTS, THREATEN OUTPUT
Tariffs on auto inputs will increase costs for vehicles, and producers will likely pass through a portion of those higher costs to customers.

The size of those cost pass throughs will play a large role in the tariffs’ effects on chemical demand. Higher prices for automobiles will discourage sales. Lower sales will reduce auto production and cut demand for plastics and chemicals used to make those vehicles.

THE EFFECT SO FAR ON AUTO BUILDS
Prior to the announcement of the US and China trade deal, Ford estimated that the gross cost impact from the tariffs is $2.5 billion. Among that, half will come from imported and exported parts as well as the effect that steel and aluminium tariffs will have on domestic prices. The rest is from imported vehicles.

Already, Stellantis halted production for two weeks at a plant in Windsor, Ontario Province, Canada, because of tariffs.

AUTO’S EXPOSURE TO TARIFFS
The US auto industry’s exposure to tariffs is not trivial because the country imports enormous amounts of auto parts, steel and aluminium. Many of these products are subject to 25% sectoral tariffs or 10% baseline tariffs.

More than 50% of the content of cars assembled in the US is imported, according to a 3 May CNN article, citing US government statistics.

AUTO PART TARIFFS
The following chart breaks down 2024 general imports by country for auto parts under the 8708 code of the harmonized tariff schedule (HTS). Figures are in billions of dollars.

Source: US International Trade Commission (ITC)

Not all auto parts will be hit by the 25% tariffs. Some parts are excluded. Those from Mexico and Canada will escape the levy if they comply with the USMCA.

STEEL AND ALUMINIUM TARIFFS
The following chart shows 2024 general imports of iron and steel under the HTS codes 7206-7224. These codes cover iron and nonalloy steel; stainless steel; and other alloy steel. The chart breaks down the imports by country and lists the value in trillions of dollars.

Source: ITC

Metal imports from the UK will be exempt under a recent trade deal, as indicated by a press conference in that country. Imports from Canada and Mexico would be exempt from these tariffs if they comply with the USMCA.

Not all of these steel imports would be used in automobiles But the chart does illustrate that the US imports iron and steel from many countries that will be covered by the 25% tariffs.

The following chart provides a similar breakdown for 2024 general imports of articles of iron and steel under Chapter 72. Figures are in trillions of dollars.

Source: ITC

The following chart provides the country breakdown for 2024 general imports of aluminium and articles thereof under Chapter 76. Figures are in trillions of dollars.

Source: ITC

OTHER THREATS TO DOMESTIC AUTO PRODUCTION
Tariffs are taxes, and taxes reduce economic growth. Slower GDP growth translates to lower sales and production.

ICIS expects that US economic growth will slow to 1.5% in 2025 from 2.8% in 2024. Growth in 2026 could be 1.7%. The country has a 34% chance of slipping into a recession in the next 12 months.

Many US consumers bought automobiles to avoid paying tariffs. Those purchases made ahead of the tariffs will come at the expense of future sales.

US SELF-SUFFICIENT FOR MANY PLASTICS, CHEMS USED IN AUTOS
Many of the plastics and chemicals used by the US auto industry are produced in abundance in the country, and that will limit customers’ exposure to the nation’s tariffs for those products used in automobiles.

The US is self-sufficient in polypropylene (PP), polyvinyl chloride (PVC) and polyethylene (PE), a plastic used in packaging and fuel tanks. Nylon is excluded from the tariffs.

Polyurethanes, the second most common polymer used in automobiles, are made with methylene diphenyl diisocyanate (MDI), and a substantial amount of US MDI imports comes from China.

The US also relies on imports of acrylonitrile butadiene styrene (ABS), much of which comes from Mexico, South Korea and Taiwan.

Additional reporting by Stefan Baumgarten, Joseph Chang and Jonathan Lopez

Insight article by Al Greenwood

(Thumbnail shows automobile. Image by Shutterstock)