Trump's First Day: New Insights for the Auto Industry

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On Jan. 20, 2025, President Donald Trump's first day, he began his second term in office. While rapid changes are expected, Trump's inaugural address and initial executive orders affecting the US and North American auto industry do not vary widely from our earlier expectations.

The following key issues will directly affect the US auto industry:

• Perceived threats from mainland Chinese automakers and technology companies;
• Environmental policy, particularly as it relates to vehicle emissions, infrastructure spending and safety regulations; and
• Trade policy as it relates to both the US-Mexico-Canada Agreement (USMCA) and potential national security tariffs.

Trump's "America First" agenda: How it will impact the auto industry

Trump's "America First" agenda echoes the promises and concerns he raised on the campaign trail, and will directly impact the auto industry, although the details of these policies remain uncertain. S&P Global Mobility still advises that a scenario mindset is critical for decision-making. Along with a baseline forecast, decisions must account for business and market demand using a range of upper and lower bounds derived from plausible scenarios.

Trump's "America First" priorities fall into four categories, as outlined in a Jan. 20, 2025 White House statement:

• Make America Safe Again
• Make America Affordable and Energy Dominant Again
• Drain the Swamp (a reference to a leaner government and reducing bureaucracy)
• Bring Back American Values

For the auto industry, the most impactful policies come under the "Make America Affordable and Energy Dominant Again" category. These include reversing former President Joe Biden's restrictions on oil drilling and energy production and promoting "consumer choice in vehicles, showerheads, toilets, washing machines, lightbulbs and dishwashers," which signals an easing of vehicle emissions and fuel economy regulations.

Another key policy in this category is to end what Trump calls Biden's policies of "climate extremism," which could affect auto industry policies. Trump has already issued the executive order to withdraw the US from the Paris Climate Accord, which will end the country's participation in a treaty dedicated to reducing global climate change and alter which environmental targets the US sets for itself.

Under the "Drain the Swamp" category, Trump aims to reform government bureaucracy and "pause burdensome and radical regulation not yet in effect that Biden announced." President Trump signed an executive order freezing all legislation not yet published in the Federal Register, pending his administration's review, fulfilling the promise in the speech to block items which the Biden Administration was pursuing. Further, reducing regulations and bureaucracy could impact the agencies that oversee regulations the US auto industry works under.

S&P Global Mobility expectations

Many of the assumptions we held prior to President Trump taking office were evidenced in the inauguration speech and executive orders signed on January 20, 2025. A dominant trait of the new White House Administration will be speed, and pressure to rethink how things are done to make sure change happens faster.

The Administration will challenge old norms and assumptions. Under President Trump's first term, he pushed for legislative and executive order changes to happen more quickly and made decisions more quickly than most previous presidents. That trait will be accentuated with the second term.

Executive branch agencies will be pushed to speed processes and reach conclusions faster, to be more efficient and reduce bureaucracy. For the auto industry, the Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) may develop rule-making proposals much more quickly.

The White House could push the Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) to develop proposals faster, though the procedural rules on public comment periods would still hold. Additionally, Trump's administration could modify procedural requirements for rulemaking.

Expected easing of Federal emissions and fuel economy regulations

As noted in earlier reports, we do not expect changes to the rule requiring emissions and fuel economy requirements to be finalized 18 months before the start of the model year. As of January 2025, NHTSA corporate average fuel economy standards could be frozen at 2027 model-year levels instead of being reduced for the 2028 model year. We would expect the EPA to adjust emission standards for 2027 model year to a lower level, mirroring NHTSA guidelines.

Current EPA-administered greenhouse gas (GHG) emissions and NHTSA-administered fuel economy regulations for light vehicles run through 2032. However, these agencies' regulations are not aligned, making it difficult for automakers to meet both standards. If the government were to close the gap between the GHG and NHTSA standards, then the federal regulations would not align with California's, which are currently stricter than federal limits.

For the medium- and heavy-duty commercial vehicle sector (MHCV), the EPA has mandated GHG emission standards (Phase 3) to begin in the 2027 model year and continue through 2032. MHCVs are not subject to fuel economy regulations under NHTSA.

S&P Global Mobility's latest assumptions are that automakers will not physically be able to comply with the later years of the federal regulations as they are written today. Change is necessary to align regulations with technological feasibility, consumer demand for electrification, and profitability at a price point consumers are willing to pay—all within the defined timeframe.

As President Trump has taken office, the shape of his administration's changes is not yet known. One potential outcome is that instead of freezing the 2027 model-year regulations, the agencies could relax regulations for the 2028 through 2032 model years. In that case, regulations for post-2032 model years would be less onerous, both due to the administration's stance and because the 2033 model year would start from a less challenging base than if the current regulations had been maintained.

We also see potential for the MHCV GHG Phase 3 regulations to be redrafted. That process could take 24 to 36 months, effectively eliminating the 2027 implementation of GHG Phase 3 until new rules are drafted—while the current GHG Phase 2 rules remain in place.

Inflation Reduction Act and Bipartisan Infrastructure Law: A mixed forecast for change

The Inflation Reduction Act (IRA), enacted in 2022, includes both consumer-level and manufacturing incentives designed to strengthen the North American supply chain. It also provides significant funding for purchasing, installing, operating and maintaining Class 6-7 zero-emission vehicle (ZEV) trucks, as well as funding for purchasing or installing ZEV port equipment or technology, including ZEV trucks themselves.

The Bipartisan Infrastructure Law is a broader piece of legislation covering billions in infrastructure updates, including a national EV charging network. Trump has signaled his intent to eliminate that funding. While only Congress is needed to alter these laws, the Republican party's control of both chambers may facilitate legislative changes.

However, reducing manufacturing funding is likely to reduce investment. Approximately 84% of the jobs supported by IRA funding (about 135,000) are in Republican states. S&P Global Mobility estimates a multiplier effect of five to 10 additional jobs for each of the direct jobs.

Republican lawmakers from districts benefiting from IRA investment may philosophically agree with reducing funding but also have a responsibility to their constituents to support the local economy. Because of this dynamic, we cannot assume their support for reducing funding.

Against this backdrop, we have focused our assumptions. We expect:

• The electric vehicle (EV) retail consumer lease credit available under the IRA will be eliminated;
• Manufacturing credits for critical raw materials and local components will likely be preserved to encourage development of local supply for raw materials and components; and
• Given the impact on Republican states of manufacturing investment, the advanced vehicle manufacturing credits available under the IRA will remain unchanged.

California's EPA Waiver likely to be revoked within Trump's first 100 days

The 1967 Clean Air Act grants the California Air Resources Board to receive waivers to set its own GHG emissions standards, and Section 177 allows other states to choose to adopt either California's standards or the federal standards. California's Advanced Clean Cars I (ACC I) program saw its waiver revoked during Trump's first presidency and reinstated under Biden. The ACC I is still more aggressive than federal standards, and we expect this waiver to once again be revoked. In December 2024, California was also granted a waiver for its ACC II program, which mandates 100% EV light-vehicle sales by 2035.

Complicating the situation, several automakers—including BMW, Ford, Honda, Volkswagen and Stellantis—signed a framework agreement to follow California's ACC I standards. To our understanding, that contract remains enforceable. Legal challenges to end the California exemption and revoke the EPA waiver are likely. The US Supreme Court may need to resolve such cases.

California's waiver significantly influences emissions requirements nationwide. If the EPA and NHTSA regulations are revised and aligned as expected—and frozen at the 2027 model year—the emissions requirements would remain out of alignment with California's stricter ACC I or Advanced Clean Cars II (ACC II) standards. Given that we do not expect the industry to be able to meet the federal regulations at this time, California may need to delay its more aggressive standards. Revoking the California waivers could partially resolve the matter.

Trump's tariff plans will reshape trade relations and the US economy

Trade policy remains central to Trump's agenda. He has proposed establishing an External Revenue Service "to collect all tariffs, duties and revenues," which he says will generate significant funds for the US Treasury and has suggested new tariffs. The new trade policy logistics and details remain unclear, but they will certainly include tariffs. As we have noted before, tariffs will increase the cost of goods and manufacturing within the US and will impact global sourcing.

Although Trump did not issue new tariffs on his first day, he has directed federal agencies to evaluate US trade relations with Canada, China and Mexico and has floated a potential 25% tariff against Canada and Mexico. We expect the fallout from tariffs to damage US economic activity. The December 2024 S&P Global Mobility light-vehicle forecasts assume a 10% universal tariff along with a 30% tariff on imports from mainland China.

Such measures would give rise to a period of elevated inflation, and we forecast the Federal Reserve will respond by pausing its easing cycle in mid-2025. However, this is one of the most fluid elements of the administration's policies, and we will adjust our forecasts as more information is available.

Trump also floated the possibility of imposing a 25% tariff on Canada and Mexico as soon as Feb. 1, 2025, though this could occur later or be applied in a more measured way, according to the latest intelligence. The USMCA free trade agreement is scheduled to be reviewed in July 2026. Trump's comments on his first day in office suggest that the potential 25% tariff on Canada and Mexico is intended to pressure both countries to address illegal immigration to the US.

While we have expected that those threatened tariffs would not occur prior to the USMCA review, the Jan 20 comments reflect the potential fast pace of activity expected from this President, and our assumptions may need to be reviewed. In addition, a tariff against these US neighbors and long-standing trading partners might be a nuanced tool rather than a sledgehammer, with specific industries targeted and exemptions for others. We will continue to review these assumptions based on any new information. If Trump imposes tariffs on Mexico and Canada, we may need to revise our expectations for a 10% universal tariff.

With respect to trade and tariffs outside of USMCA, S&P Global Mobility's December 2024 forecast assumes a 10% increase on all imports from Europe, Japan and any country other than mainland China, Canada and Mexico. We also expect a 30% tariff on imports from mainland China. We see these tariffs starting from the second quarter and ramping up over the following four quarters. We do expect other countries to respond with retaliatory tariffs, though none has yet provided specifics.

Biden-era ban on connected and autonomous vehicle technology from China, Russia

In December 2024, Biden implemented a rule banning the sale of vehicles in the US with software or hardware related to vehicle connectivity and autonomous driving systems developed by companies tied to Russia or mainland China, regardless of production location. While this ban does not take effect until the 2027 model year for software and the 2030 model year for hardware, it still has significant impact.

This effectively bans mainland China brands from manufacturing in Mexico and shipping to the US under the USMCA. At time of this writing, it is uncertain how the Trump administration will react to Biden's rule. On its face, the ban does support the America First and national security issues which Trump has said are a priority for his administration.

Tariffs and immigration policies could negatively impact total industry volume (TIV)

S&P Global Mobility continues to update our forecast against these changing conditions. As of January 2025, these changes could result in the EV share of US light-vehicle sales reaching about 25% in 2030, down from the 30% we had forecasted in December 2024.

We expect the relaxed NHTSA corporate average fuel economy targets to increase demand for internal combustion engine (ICE) products and prompt adjustments in production planning based on country of origin due to tariffs. We expect consumer interest in ICE products to grow due to lower prices, prompting automakers to extend vehicle lifecycles.

Along with the increased demand for ICE products, we expect that reduced government incentives to consumers will impact EV demand. Demand for plug-in hybrid electric vehicles is likely to decline as well, depending on the final form of IRA incentives and automaker production plans. Hybrid electric vehicles will see increased share, depending on gas prices and changes to regulatory policy.

We do expect tariffs—whether they are protective, punitive, or a mix of both—to negatively impact our future total industry volume (TIV) assumptions. These tariffs will increase costs to customers, perhaps partially offsetting the vehicle affordability gains that could result from a lower EV mix. We also expect that tariffs will increase US or North American sourcing, which comes along with higher labor rates.

Another key factor affecting our TIV assumptions is the uncertainty surrounding immigration policy. Trump's stricter immigration controls and the potential for mass deportations can work against TIV, as a reduced immigrant population will decrease the customer pool and US consumer's buying power.

A path forward becomes more clear

Despite consumer uncertainty and resistance to full electrification, Trump's early actions provide clarity on the immediate direction of US policy. In our earlier reporting, we noted that automakers and suppliers have been delaying near- and long-term product planning decisions. As the administration's policies continue to unfold, even if details are outstanding, we will begin to see these companies make decisions. We fully expect automakers are poised to act, and many already have a clear idea of where they will move their propulsion system design mix.

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.