On April 29, 2025, the U.S. government announced an amendment to its tariff policy on automobiles and automobile parts that will allow automakers to apply for an offset to Section 232 duties paid on imported automobile parts.
While tariffs on automobiles and auto parts remain in place, the amendment provides duty relief for automobile parts incorporated into automobiles assembled in the United States. Dubbed the Import Adjustment Offset or IAO, this newly introduced form of duty relief is regressive and implemented in two periods, sequentially.
In addition to this amendment, a separate amendment was issued regarding tariff stacking. Tariff stacking is when one tariff is applied in addition to (not in place of) another tariff. In the case of auto tariffs, the tariffs were stacked onto other tariffs, such as tariffs on steel and aluminum and tariffs on goods imported from Canada and Mexico (both at a rate of 25%). The amendment places limits on stacking, potentially providing relief to importers of automobiles and auto parts from the additional tariffs levied by certain IEEPA and Section 232 actions.
IMPORTANT: The IAO and the stacking amendments have been issued through presidential proclamation and executive order, respectively. Functional guidance has not yet been provided by customs authorities. As such, both amendments and the rules governing them are subject to potential cancellation or change without notice.
IAO eligibility
Eligibility for IAO is based on specific criteria and equally specific schedule.
Automobiles must have final assembly performed in the United States to take advantage of the duty relief. Furthermore, the IAO can only be claimed by Importers of Record (IOR) authorized by the manufacturer to reduce duty outlay related to that manufacturer’s imports under Proclamation 10908, including suppliers in the manufacturer’s supply chain for those automobiles which undergo final assembly in the United States.
The IAO is available for automobiles assembled in the United States based on the following schedule:
Date: Year 1 (April 3, 2025 – April 30, 2026.
Eligible value: 15% of the MSRP of each U.S.-assembled auto.
Offset: 3.75% of the aggregate MSRP of all U.S.-assembled autos.
Calculation: 25% tariff on 15% of MSRP
Date: Year 2 (May 1, 2026 – April 30, 2027)
Eligible value: 10% of the MSRP of each U.S. assembled auto.
Offset: 10% of the aggregate MSRP of all U.S.-assembled autos.
Calculation: 25% tariff on 10% of MSRP.
IAO Cap
The offset is capped at the actual automobile parts tariff liability for that Manufacturer under Proclamation 10908. Unused offsets due to overestimated production cannot be transferred or repurposed.
Applying for IAO
We strongly advise auto manufacturers to begin the application process as soon as possible. To do so, you must ensure your assembly projections for the time periods noted above are as accurate as possible.
You should engage with your internal procurement, finance, logistics and compliance teams to compile all the necessary documentation and await for further guidance from the U.S. Department of Commerce, which will outline the specifics of the application process no later than May 28, 2025.
In addition to the projected volume of U.S.-assembled vehicles, manufacturers will need to provide:
• Plant locations where final assembly occurs.
• Projected tariff costs, both direct and via suppliers.
• Requested offset amount and breakdown by IOR (including IOR numbers).