Get your automotive data ad-free: become a premium member today!

The North American Auto Industry Under Threat from Trump’s Tariffs

Trump signing an executive order
Credit: ABC News

Summary

  • North America’s auto supply chain is deeply interconnected, and tariffs could disrupt it significantly.
  • A 25% tariff on Canadian and Mexican imports may raise car prices by up to $5,000.
  • Consumers could delay purchases, increasing demand for used cars and maintenance services.
  • Automakers face short-term job losses and production delays while rebuilding U.S. manufacturing capacity.
  • The economic impact is complex, with long-term goals clashing with immediate financial strain.

Beyond political affiliations, most of us can agree on two things we care about: the economy of our countries and the automotive industry. And if you haven’t been following the news, the proposal set by the Trump administration of a 25% tariff on imports from Canada and Mexico has raised serious concerns within the automotive world. 

The North American auto sector is pretty interdependent, with vehicles and parts flowing daily across borders. These tariffs would directly hit the decades-old supply chain, everything from vehicle assembly to the production of parts. 

Canada and Mexico are the world’s biggest trading partners with the United States in the sale of parts and vehicles, and imposing such a tariff could translate into higher prices for consumers, loss of jobs, and a re-evaluation of automakers’ production strategies. This article looks at the ripples that these tariffs will make in the industry and for consumers.

How Tariffs Threaten the Automotive Supply Chain

Donald Trump signing executive actions on Jan 6

The automotive supply chain across North America is an intricately woven web, with parts and components crossing borders multiple times before assembly. Mexico alone accounted for 16.1% of U.S. vehicle sales in 2024, while Canada supplied 7.3%, both being vital suppliers of automotive parts. Under the proposed tariffs, this easy flow of goods would be severely disrupted, putting a host of complications upon manufacturers who depend on parts arriving right on time for assembly. 

Revising the system, which has been honed for decades, involves far more than a short-winded fix: It’s costly and time-consuming to re-engineer this supply chain. Automakers might be forced to localize production, but limited U.S. manufacturing capacity could further delay production timelines, driving up costs and exacerbating supply chain issues.

busy docking port

The complexity of the supply chain also means that parts may cross borders multiple times, making it unclear how tariffs would be applied to each instance. In the short term, some manufacturers could partly absorb the cost increase, but longer term, cars could significantly increase in price, and production rates might slow as companies get accustomed to what to expect from the new regulatory environment.

The Consumer Cost of Tariffs

Woman buying a new car at a Toyota dealership
Credit: CNBC

One of the most immediate and visible effects of Trump’s proposed tariffs would be an increase in car prices. A 25% tariff on vehicles and parts imported from Canada and Mexico would simply raise the manufacturer’s suggested retail price of cars accordingly. For example, if one car costs $20,000, it could see an increase of as much as $5,000, sending new cars out of reach for many buyers.

The ripple effects would go beyond just new car buyers. As prices increase, consumers might delay their purchases of new vehicles, followed by a rise in the demand for used cars, to which the automotive service industry, in turn, stands to benefit since owners are likely to hold onto their current cars for a longer time, wanted evermore repairs and maintenance.

Higher prices would hit middle- and lower-income households hardest, who tend to be more sensitive to price changes. This added burden could shrink the pool of potential buyers seeking new vehicles, which would further stall sales and bog down the already-foot-dragging economy. In a sector that is already having a hard time with the ebb and flow of demand, such a siphoning of cash would add to the pain in times of economic uncertainty. 

Job Loss or Job Creation? The Tariff Debate for U.S. Workers

Trump speech with auto workers union
Credit: Getty Images

The proposed tariffs are a protectionist push to encourage domestic manufacturing and save U.S. jobs, but the reality might be more complex. Whereas the intention is to shift production back to the U.S., the practical challenges of relocating manufacturing might lead to unintended consequences. Many U.S. automakers rely on plants in Canada and Mexico to manufacture some of their most popular vehicles, including trucks, SUVs, and EVs. Because tariffs raise the cost of production, automakers might have to lay off some of their workers to try to balance out the financial strain that comes with higher costs.

Canadian flag at GM CAMI plant Ingersoll Ontario
Credit: The Logic

Rebuilding U.S. manufacturing capacity to handle the volume of production currently handled by Canada and Mexico could take years and come with significant costs. The outcome could be a paradoxical situation in which jobs are lost in the short term due to slumping vehicle sales, but long-term jobs are created after much investment and hard work in reshaping the U.S. manufacturing landscape. For workers, the net impact could be uncertain: initial job loss greater than new jobs created in the short term of tariff imposition.