Since taking office, the Trump administration has slapped new tariffs on both Canada and Mexico. This move has raised the most serious worries by North American automakers. These tariffs, which took effect at 12:01 am ET on Saturday, introduce a 25% import tax on most auto parts, threatening to disrupt production processes and dramatically increase costs for both manufacturers and consumers.
And the auto industry still mostly relies on foreign-produced parts. In reality, more than 50% of the parts in cars and trucks built in America are produced overseas. Last year, all 10 million-plus cars made in U.S. factories contained at least a few foreign-made parts. Not one fully assembled vehicle had 100% of their parts made domestically. Last year, Mexico exported a record $82.5 billion in auto parts to the U.S. This accomplishment turns Mexico into the biggest provider of imported auto parts.
The recently finalized tariff regulations provide another huge boon. Additionally, any car built in the U.S. with 85% “USMCA compliant” parts will be free from the tariffs. Very few vehicles meet this threshold. Canadian parts have a significant head start too, as they are largely tariff-free. In comparison, Mexican-made components face high tariffs, further complicating the supply chain for U.S. manufacturers.
The revenue impacts of these tariffs are shocking. Industry estimates suggest that the new burden on the industry could reach the tens of billions of dollars. That would be the equivalent of more than $4,000 per vehicle on average to American consumers. If these tariffs were in place last year, automakers would have been slapped with an unbelievable $60 billion invoice. This regulatory financial burden would have industry-altering effects.
United States, automakers may soon have a light at the end of the tunnel. They could use offset mechanisms specifically aimed at reducing the impacts of industrial parts tariffs. As industry insiders like USAToday note, this should be viewed as no more than a temporary Band-Aid measure.
“Frankly, from my perspective, (the parts tariffs) looks worse for the broader economy than the tariffs on imported vehicles,” said Jonathan Smoke, an industry analyst.
Smoke went on to stress that the consequences reach beyond just those who buy new cars. This significant new cost will inevitably raise inflation for repair and maintenance services, hurting every American in the process.
“The tariffs on parts will lead to higher inflation in repair and maintenance and insurance which impact every American and not just the people thinking about buying a new imported vehicle,” he added.
The Trump administration’s earlier auto tariffs mostly exempted U.S.-made vehicles. This new onslaught of parts tariffs would deeply change all of that. Auto manufacturers are still dealing with high material costs. Such challenges may result in a season of extreme production schedule delays, severely impacting the industry as a whole.
Automakers still might be getting used to that recent tone of rules. They are fighting an uphill battle to stay profitable amid a growing and complicated patchwork of state and international trade regulations.
