The U.S. auto industry faces significant uncertainty as new tariffs on imports from Canada and Mexico loom. With just over half of the 8 million cars and light trucks imported to the United States last year originating from Mexico, the potential impact of these tariffs could be profound. Starting March 12, tariffs of 25% on vehicles from both neighboring countries will be implemented, compounding the existing higher taxes on foreign steel and aluminum.
These tariffs come as President Trump removes exemptions previously granted on metals tariffs imposed during his first term. The increase of the levy on aluminum to 25% raises concerns about skyrocketing vehicle prices, particularly for full-size pickup trucks, which could see costs rise by as much as $10,000.
The repercussions of these economic policies extend beyond simple price increases. The auto industry has long relied on an integrated North American manufacturing framework. Canada and Mexico represent the top two foreign markets for U.S.-built cars and light trucks, accounting for 53% of America's auto exports. A decade ago, the lowest-earning 20% of American consumers struggled to afford a new car, and the impending tariffs could exacerbate this issue.
Ford, which manufactures the small Bronco Sport SUV and Maverick pickup in Sonora, Mexico, has expressed strong concerns about the financial implications. CEO Jim Farley highlighted the chaos caused by the tariffs, stating that “so far what we’re seeing is a lot of cost and a lot of chaos.” The costs will likely increase as auto components travel back and forth across borders, leading to further complications in production.
Stellantis, which produces the Jeep Compass and Wagoneer S at a plant in Toluca, Mexico, and General Motors, which operates a facility in Silao for GMC and Chevrolet pickups, also face challenges. The logistical hurdles associated with navigating tariffs may lead to increased operational costs and delays.
The tariffs may lead to a decline in auto sales by as much as 13.6% annually in Canada and 10.6% in the United States. K. Venkatesh Prasad, an automotive expert, noted that “you’re talking about the material costs going up every time (a part) goes into one market and comes back.” This disruption could not only hinder production but also lead to higher prices for consumers.
The decision to impose these tariffs comes amid fears that retaliatory measures from Canada and Mexico could push those nations into recession while stalling U.S. economic growth. Andrew Foran of TD Economics warned that “the economic impact of a sustained 25% tariff on Canada and Mexico would be severe,” predicting full tit-for-tat retaliation.
Since 1965, the U.S. and Canada have eliminated tariffs on each other's automobiles and auto parts, creating an integrated manufacturing powerhouse in North America. However, the new tariffs threaten to unravel decades of cooperative trade relationships.
Gantz, an industry analyst, described the situation as “an administrative and bureaucratic nightmare to keep track of things.” As manufacturers grapple with increased costs and potential supply chain disruptions, many are left uncertain about how to proceed in this rapidly changing landscape.
