Trump’s Tariffs Threaten U.S. Auto Industry, Prompting Scramble for Solutions
Former U.S. President Donald Trump’s imposition of 25% tariffs on vehicles and auto parts imported from Canada and Mexico has sent shockwaves through the American automotive industry, forcing manufacturers to grapple with the potential for significantly increased costs on some of their most popular models, particularly full-sized pickup trucks. The industry is now caught in a complex situation, balancing immediate concerns over tariffs with longer-term strategic decisions on production and investment.
The tariffs, which went into effect recently, threaten to disrupt established supply chains and potentially raise prices for consumers, especially those in Trump’s core base of rural Republican voters who heavily favor pickup trucks. The White House initially offered a temporary reprieve, stating that many North American-built vehicles complying with the 2020 U.S.-Mexico-Canada Agreement (USMCA) rules of origin would be exempt for one month.
Press Secretary Karoline Leavitt announced this temporary exemption, stating, "We are going to give a one-month exemption on any autos coming through USMCA… so they are not at a disadvantage." However, reciprocal tariffs are slated to take effect shortly thereafter, creating an atmosphere of uncertainty.
According to reports, Trump raised the possibility of a 30-day pause on USMCA-compliant vehicles in exchange for increased production within the United States. This proposal was reportedly discussed during a call with top executives from General Motors (GM), Ford, and Stellantis. While automakers have expressed a willingness to boost their U.S. investments, they are also seeking clarity on both tariff policies and vehicle emissions regulations before committing to major operational changes.
Ford, GM, and Stellantis declined to comment on the specific details of the meeting.
The potential for a deal that mitigates the impact on pickup trucks is particularly significant given the popularity of these vehicles, particularly among Trump’s political base. Approximately one-third of all pickups sold in the U.S., including both American and foreign brands, are manufactured in Mexico and Canada, as indicated by research from Global Data. Pickups are a crucial segment for the U.S. auto industry, generating substantial sales and profits for GM, Ford, and Stellantis, which owns the Jeep and Ram truck brands.
Last year, U.S. automakers sold nearly 3 million pickups, representing roughly 20% of total national sales. Furthermore, pickup truck drivers are statistically more likely to identify as Republicans than Democrats, as evidenced by an August survey by Edmunds, an industry information provider.
The tariff pause offers the industry a brief window to maintain current consumer prices by drawing on existing inventory at dealerships. Rhett Ricart, an Ohio dealer selling GM and Ford vehicles, expressed hope for a quick resolution. "I think it won’t take a month for them to figure out how to handle this thing," he said, prior to the announcement of the temporary reprieve. "I’ll be more concerned… 30 days from now."
However, the auto industry’s long product cycles are not aligned with Trump’s volatile tariff timelines. Automakers and suppliers are actively exploring strategies to avoid or absorb the new taxes, including potentially raising consumer prices. The strategies they employ and the degree to which they must pass costs onto consumers will vary significantly, depending on their specific exposure to manufacturing in Canada and Mexico.
Analysts at Wolfe Research estimate that the tariffs could add an average of $3,000 to the cost of a vehicle, with models imported from Canada or Mexico potentially facing an increase of around $7,000. Given that full-size pickups already have an average transaction price of approximately $65,000, according to January data from Cox Automotive, the tariffs would add a sizable burden.
"Once the manufacturer starts passing on that cost to us, we’re going to have no choice but to pass it on to consumers," said Jeff Tamaroff, Chairman of Tamaroff Auto Group, which owns Honda and Nissan dealerships in Michigan.
These extra costs would come on top of already-elevated vehicle prices, which have risen sharply since the onset of the coronavirus pandemic. The average vehicle sales price reached $48,641 in January, according to Cox Automotive data.
Among the Detroit-based automakers, GM’s Chevrolet and GMC pickups, along with Stellantis’ Ram, are more heavily exposed to Trump’s tariffs than Ford, as these companies manufacture a larger percentage of their pickups in Mexico. While Ford primarily builds its F-series pickups in the United States, it does produce some truck engines in Canada, highlighting the complex economic interdependencies within North America.
Industry research indicates that virtually no American vehicle is made entirely from American parts. Barclays bank analysts estimate that Mexico provides as much as 40% of the parts used in U.S. vehicles, with Canada contributing over 20%. Suppliers anticipate having to absorb some of the tariff costs and face the likelihood of further challenges if consumer demand softens due to increased vehicle prices.
Automakers and suppliers also have concerns about the effects of tariffs on vehicle components that repeatedly cross borders during the manufacturing process. These companies worry that such parts could be taxed each time they cross the border, although Trump has not clarified his policy on this issue.
Consider the example of truck transmissions made by German supplier ZF Friedrichshafen. These transmissions, used in the Ram and other vehicles, include parts that cross borders multiple times before reaching their final destination.
The process begins at a factory in Mexico, where torque converters (a part that transfers power from the engine to the transmission) are produced. These converters are then shipped to a ZF facility in South Carolina for transmission assembly. The finished transmission, including the torque converter, is then sent back to Mexico for installation into a Ram pickup, which then crosses the border again to reach a U.S. dealer.
According to ZF, approximately 30 other car and truck components follow a similar convoluted path across the U.S.-Mexico border. "A tariff over Mexico, in this particular case, or over Canada, is going to mean hundreds of millions of dollars as an impact on the industry overall," said ZF North America President Ramiro Gutierrez.
Bernstein analysts estimate that without significant production shifts, the ripple effect across thousands of individual auto parts could potentially reach $40 billion by the end of 2025.
"However bad it looks, it’s worse," said Pat D’Eramo, the chief executive of Martinrea, a Canadian company that manufactures brake lines and other products. The company has manufacturing operations in all three North American countries, with some products crossing borders multiple times.
After decades of enjoying free trade across the U.S., Canada, and Mexico, the American auto industry is now contemplating how to adjust its supply chains in the event that the trade war continues, a potentially expensive undertaking.
Since the Trump administration enacted USMCA in 2020 to replace the 1994 North American Free Trade Agreement, U.S. automakers and their suppliers have invested billions to expand their U.S. operations to avoid tariffs.
Some industry executives now feel they are being penalized for complying with Trump’s signature trade deal. "This is a bonanza for our import competitors," Ford CEO Jim Farley told analysts last month, pointing out that some rivals import from Asian countries with few duties.
The situation remains fluid, with the auto industry hoping for a resolution that minimizes disruption and allows them to continue delivering affordable vehicles to American consumers.
