Automotive groups brace for 25% tariffs on Mexico, Canada

President Donald Trump confirmed from the Oval Office yesterday that his administration will impose a 25% tariff on imports from Mexico and Canada, starting February 4. 

The decision follows weeks of warnings and is causing major concerns across the auto industry, with critics arguing it could do more harm than good.

Why it matters: Trump has repeatedly said that tariffs are the only way to save the American auto industry, claiming they’ll bring production back to the U.S. But trade experts warn the real impact could be rising costs and major supply chain disruptions.

• According to the libertarian think tank CATO Institute, these tariffs could backfire. 

• The reason? Together, Mexico and Canada account for nearly half of U.S. imports and exports of motor vehicles and parts.

• And the North American auto supply chain is so deeply integrated that an engine, transmission, or other component might cross U.S. borders seven or eight times before making it into a finished vehicle.

Using data derived from the National Highway Traffic Safety Administration (NHTSA), CATO created a table showing which vehicles will be affected the most based on their share of foreign part mix and final assembly

Worth noting: The U.S. and Canadian auto supply chains are so intertwined that the NHTSA doesn’t differentiate between American-made and Canadian-made parts.

Zooming out: Imposing 25% tariffs on Mexico and Canada could hit American automakers in multiple ways, particularly on vehicle pricing. 

• According to Wells Fargo, these tariffs would add an average $2,100 to the price of a vehicle made by U.S. automakers. 

• For vehicles entirely produced in Mexico or Canada, Wells Fargo estimates buyers could see prices jump by $8,000 to $10,000.

• But it depends heavily on the total cost of producing the unit and how much is sourced outside the home country.

Cox Automotive’s Jeremy Robb outlined a few different hypothetical scenarios that show just how much vehicle prices could change by component mix:

Yes, but if Trump’s tariffs apply every single time a part crosses the border, costs could multiply rapidly.

• Especially if Mexico and Canada levy retaliatory tariffs.

• Mexican President Claudia Sheinbaum said at a press conference last week, “If there are U.S. tariffs, Mexico would also raise tariffs.”

• And CATO says Detroit’s automakers—GM, Ford, and Stellantis—stand to lose the most, as nearly half of all vehicles exported from Mexico are made by those automakers.

What’s more: Michael Robinet, an analyst at S&P Global, told CNN that factories could start slowing down—or even shutting down—in anticipation of the levies. 

Bottom line: If the tariffs take hold, automakers and suppliers could pass these costs along to consumers rather than absorb them. But with vehicle unaffordability near record highs, some might resist that temptation.

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