The catch behind tariff-free cars
It sounds like a win for Filipino car lovers. But hold your horses. There’s a catch or several of them.
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It sounds like a win for Filipino car lovers. But hold your horses. There’s a catch or several of them.
Illustration by Glenzkie Tolo
When news broke that President Donald Trump had cut tariffs on Japanese cars from 27.5 percent down to 15 percent a few days ago, the internet of car news went into overdrive. Japan, in return, promised a jaw-dropping $550 billion in US investments and even agreed to buy more American rice.
But while Americans and Japanese were busy celebrating, Filipinos started daydreaming, too.
After all, the Philippines recently signed its own deal with zero tariffs on US car imports.
It sounds like a win for Filipino car lovers. But hold your horses. There’s a catch or several of them.
On paper, this is big news. Tariffs are government-imposed taxes slapped on imported goods. Cut them to zero, and in theory, the savings should trickle down to buyers.
That’s why people got excited. It was all over the Philippine automotive news headlines back in July and August. Some Pinoy motorheads started imagining a Chevrolet Suburban costing less than a small townhouse outside Metro Manila, or a Dodge Challenger parked in their garage.
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But wait. Don’t trade your Vios for a Wrangler just yet.
The car may be tariff-free, but the parts are not. Vehicles assembled in the US rarely use 100 percent American parts. The engine might come from Mexico, the electronics from Korea, the gearbox from Japan, and the semiconductor chips from Taiwan. Each of those components can still mean tax duties.
The label “Made in USA” just means the car was assembled there. Not that all its parts are American. Many critical components are imported and still face US tariffs. Tariff-free status for finished cars does not eliminate those underlying costs.
For example, the US imposes a 25 percent tariff on certain auto parts and components, including engines, transmissions, and electrical parts, unless they qualify under agreements like USMCA.
These duties apply even if the final vehicle is assembled stateside.
If a finished car ships duty-free from the US to the Philippines, the underlying production costs may remain high.
In addition, even if the government cuts tariffs and import costs drop, there’s no guarantee that dealers will pass on the savings. Some might just smile and say, “Sir, it’s still P4.5 million, but look at the new cupholders.”
It’s the same story every time oil prices dip. Global prices fall, but the jeepney fare does not. As one netizen observed, “Even if tariffs go down, it doesn’t mean the showroom price will follow right away.”
ASEAN cars already enjoy zero tariffs under the ASEAN Free Trade Area (AFTA) and its Common Effective Preferential Tariff (CEPT) scheme, which cuts intra-ASEAN duties to 0 to 5 percent. The US deal simply allows a level playing field for American imports.
The local auto industry is not panicking either. Industry sources suggest that the zero-tariff concession on US vehicles is expected to have only a limited or minimal impact on the local auto market.
Zero tariffs on US cars make for great headlines, but they don’t guarantee cheaper wheels in your garage. Even without the tax, there’s still the cost of parts and the inevitable mark-ups.
We might see more American SUVs and trucks on Philippine roads. That could be a good thing. It gives buyers more choices than before. But whether those choices come with lower price tags is still uncertain.
Tariff-free does not mean worry-free. It just means the car of your dreams is a little closer, but still comes with a payment plan.
Yet somehow, those taxes wrapped in your car loan feel like you are buying more than just the car. It almost feels like you’re also paying for invisible infrastructure projects nobody ever asked for.
