Hua Er Jie Jian Wen·2025-10-17 00:22Core Viewpoint - The U.S. automotive industry is set to benefit from an extension of tariff exemptions on imported auto parts, reflecting a trend of mitigating the negative impacts of tariffs imposed under the Trump administration [1][3]. Group 1: Tariff Exemption Details - The U.S. Department of Commerce plans to announce a five-year extension of the tariff exemption for auto manufacturers, which was originally set to expire after two years [1]. - This policy allows automakers to offset a portion of the 25% tariff on imported auto parts, with a credit equivalent to 3.75% of the value of vehicles manufactured in the U.S. [4]. - The exemption was a result of months of lobbying by major automakers like Ford and General Motors, who are facing increased costs due to tariffs on imported vehicles and materials [4]. Group 2: Broader Implications of Tariff Policies - The extension of the tariff exemption is indicative of a larger trend where the actual impact of U.S. trade policies is less severe than initially claimed, with exemptions playing a crucial role [5]. - A report from Citigroup noted that the effective tariff rate in the U.S. is around 9%-10%, significantly lower than the theoretical rate of approximately 18%, largely due to policy exemptions [5]. - The report also highlighted that between 2019 and 2021, 957 companies submitted over 163,000 tariff exemption applications, with a high approval rate of 61% [5]. Group 3: Economic Impact and Market Reactions - The lower-than-expected impact of tariffs has contributed to a lack of significant inflation related to tariffs, as companies have managed to mitigate costs through various strategies [6]. - Citigroup's analysis suggests that the current trade environment, characterized by "loud thunder but little rain," is favorable for risk assets and provides the Federal Reserve with room to lower interest rates amid a weak labor market [6]. - However, there are concerns that inventory built to avoid tariffs is nearing depletion, which could lead to increased inflation in the coming months [6].