Why carmakers can't celebrate the Supreme Court win

The Supreme Court ruling was initially delayed in January, but in February it came to the decision – by a 6-3 majority – that the International Emergency Economic Powers Act (IEEPA) "does not authorise the president to impose tariffs to deal with the declared drug trafficking and trade deficit emergencies".

Brett Kavanaugh, associate justice of the Supreme Court of the United States, said he firmly disagreed with the decision but noted that "the decision might not substantially constrain a president’s ability to order tariffs going forward" provided the tariffs are justified by another statute such as the Trade Expansion Act of 1962, the Trade Act of 1974 and the Tariff Act of 1930.

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And that's exactly how Trump proceeded. With the tariffs imposed under the IEEPA immediately struck down, Trump signed a proclamation imposing a new "temporary import surcharge" of 10% – as permitted by Section 122 of the Trade Act of 1974. This act allows the president to impose a tariff up to 15% without congressional approval for a period of up to 150 days to "address fundamental international payments problems".

Trump later claimed on social media that this 10% global tariff would be increased to the maximum rate of 15%, although that increase is yet to be confirmed by official White House documentation.

However, several goods have been exempted from the new import duty "because of the needs of the US economy or in order to ensure the duty more effectively addresses the fundamental international payments problems facing the United States". Amongst these exempt goods are: passenger vehicles; certain light trucks; certain medium- and heavy-duty vehicles; buses; and certain parts of passenger vehicles, light trucks, heavy-duty vehicles and buses.

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It was also announced that all goods compliant with the US-Mexico-Canada Agreement (USMCA) would be exempt from the duty. The tariff will be applied at the same rate to imports from any country outside the US and according to a White House official, all countries that had previously negotiated a lower tariff rate as part of trade negotiations – including the UK, the EU and India – will also be subject to the 10-15% rate.

This blanket tariff applying equally to all countries will garner a mixed reception, seeing significant tariff cuts for some countries and appearing, on the face of it, to eliminate the strategic preferential position countries like the UK negotiated with the US on for auto trade.

While other countries faced higher tariffs on vehicles imported to the US, auto-related trade negotiations were central to discussions when forming the UK-US Economic Prosperity Deal. An agreement was made to drop tariffs on vehicle imports from the UK to 10% (from 25%), which put the UK at an advantage on the global stage, but this latest development seems to have levelled that playing field and left the UK in a very uncertain position.

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“Our approach to the US has always been pragmatic. We continue to have productive conversations with them… and those discussions are happening at all levels, but nothing is off the table at this stage," the official spokesperson for UK prime minister Keir Starmer has said.

“Industry doesn’t want to see a trade war where both sides keep escalating the situation, and that’s why our focus is on constructive engagement with our US counterparts to retain the UK’s competitive advantage."

It is worth noting that as the Supreme Court decision only related to those tariffs under the IEEPA, those with a legal basis of Section 232 of the Trade Expansion Act of 1962 or Section 301 of the Trade Act of 1974 remain. For automotive, this means the Section 232 tariff of up to 100% on certain EVs and the Section 301 tariff on medium- and heavy-duty trucks, for example, are still in force. Figure 1 shows which tariffs have been struck down, implemented or sustained following the Supreme Court's decision this February.

Read: Geopolitics and shifting investment plans reshape 2026 automotive strategy

What it means for automotive production: clarity promised, confusion delivered

If carmakers and their suppliers were hoping the Supreme Court's ruling would stabilise the ground beneath their feet, that hope has been swiftly revised. The IEEPA tariffs are gone, vehicles and parts are exempt from the new 15% import surcharge, and the White House insists the policy direction has not changed.

Yet for those running assembly lines and managing supplier networks, the situation is arguably more complicated than it was before.

Exempt from one burden, bound by several others

The exemption of passenger vehicles, certain commercial vehicles and automotive parts from the Section 122 surcharge is not trivial. Under the previous IEEPA regime, stacked tariff rates on some country-of-origin imports were reaching 60%, compounding existing Section 232 and Section 301 duties into an almost unworkable cost environment.

For production planners sourcing from China, a normalisation to 15% - or indeed, outright exemption - represents a meaningful, if partial, breathing space. But the Section 232 tariffs are still very much in force. The 25% duty on imported passenger vehicles and light trucks, the 25% levy on auto parts, and the equivalent charge on steel and aluminium have not moved.

These are the tariffs that, as AMS has reported, added at least $2,000 to the average cost of a US-assembled car and as much as $10,000 for premium imports - even before a single component crossed a border under the now-defunct IEEPA framework. A Section 232 exemption for USMCA-compliant content softens the blow somewhat, but only for the proportion of a vehicle's content that qualifies, and compliance is neither automatic nor costless to demonstrate.

For EV programmes specifically, the Section 301 tariff of up to 100% on certain electric vehicles from China - a measure introduced under the Biden administration and preserved intact - continues to foreclose entire sourcing strategies. Volvo's decision to write down SEK 11.4 billion ($1.2 billion) on its Chinese-made ES90, illustrates precisely what happens when a production geography is rendered commercially inviable by policy rather than by demand.

The Section 232 overhang and what it means on the shopfloor

The persistence of Section 232 is nothing less than a structural constraint that reaches deep into the production process. Data from the latest Automotive Manufacturing Outlook Survey, compiled with AMS in partnership with ABB from 473 manufacturing professionals, found that 45% of respondents identified trade restrictions as their primary financial concern.

More revealingly, 29% named tariffs as one of their three biggest challenges - not because of the headline rate, but because of what tariff exposure forces manufacturers to do: re-engineer supply chains, duplicate sourcing arrangements and invest in regional production capacity that would not otherwise be warranted. Each of these responses carries a cost penalty of its own, quite apart from the duty itself.

The heavy truck sector offers an instructive case study in how quickly these pressures can cascade. The disruption that followed the introduction of a 25% Section 232 levy on medium- and heavy-duty truck imports - a tariff that remains in force and that the current Supreme Court ruling does nothing to address.

Mexico accounted for approximately 78% of heavy truck exports to the United States before that levy took effect, leaving manufacturers with production assets in Monterrey and other Mexican industrial centres facing a severe competitive disadvantage on their primary export market. The new Section 122 surcharge exempts certain medium- and heavy-duty vehicles - but the Section 232 charge above it does not disappear; the layers simply rearrange.

Manufacturers caught between clarity and compounding cost

What the ruling has not resolved - and may have made harder to resolve - is the question of strategic planning horizons. AMS analysis published in October 2025 cited S&P Global's description of a "virtual gridlock" in medium and long-term production planning, with programme changes running at three to four times their historical rate. The Supreme Court's intervention adds a new variable: the legal architecture for tariffs is now visibly contestable, and the tools available to the executive branch will shift depending on congressional patience and political circumstance.

Manufacturers planning new model investments, plant capacity decisions or localisation strategies must now model not just the current rate environment but the plausible range of future legal instruments through which tariffs could be reintroduced or reconfigured.

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The UK's situation illustrates the asymmetric impact with unusual clarity. Having negotiated a 10% rate on most goods exported to the United States, British vehicle and component manufacturers now find themselves swept into the uniform 15% rate alongside countries that had previously faced far steeper duties.

The net effect is a 50% increase in the tariff burden on UK automotive exports to the US, arriving without any corresponding disruption to the policy framework that was supposed to protect them. For manufacturers with significant transatlantic exposure - whether through finished vehicle exports or parts flowing into North American assembly - this is a material deterioration in the trading environment.

US trade representative Jamieson Greer was explicit on the directional logic, telling ABC News: "The policy hasn't changed. The legal tool to implement it - that might change, but the policy hasn't changed." For a production planner, this is not a reassurance; it is a statement that the administration's intent will find expression through whatever statutory instrument remains available, regardless of what the courts determine.

Localisation pressure intensifies as the policy fog persists

The longer-term production consequence of this environment is one that AMS has been tracking throughout 2025 and into 2026: a steady, if not always smooth, repositioning of production capacity towards the United States. Mercedes-Benz is adding GLC production to its Alabama facility. Volvo is bringing forward XC60 manufacturing at its South Carolina plant. BMW is expanding electric SUV production at Spartanburg. These are not marginal adjustments - they represent substantial capital commitments driven as much by tariff arithmetic as by market proximity.

Yet localisation is not a costless solution. It demands investment at a time when supplier balance sheets are under acute pressure, skills shortages in software and advanced manufacturing are widening, and plant restructuring is simultaneously consuming management bandwidth at Volkswagen, Nissan, Stellantis and others. The industry is being asked to reorient its production geography at speed, under financial strain, in a regulatory environment that has demonstrated its capacity to shift without notice.

What the Supreme Court ruling ultimately provides is not stability but a new iteration of instability - one in which auto manufacturers retain their partial exemptions for now, but in which the legal and political forces shaping their cost base remain as unpredictable as at any point in the past three years. Our ongoing coverage of tariffs and their impact on production strategy reflects the breadth of that challenge. For the industry, the question is no longer whether to adapt, but how fast - and at what cost.