New import tariffs imposed by the US Trump administration are being planned for implementation on 4 February. They include 25% tariffs on goods from Mexico and Canada that would include automotive components and vehicles (Canadian energy faces a lower 10% tariff). Goods imported from China would attract a 10% tariff.
President Trump is demanding that Mexico, Canada and China take action on the flow of the drug fentanyl into the US and that Mexico and Canada take action on illegal immigration into the US. Trump has also cited large bilateral trade deficits as a justification for the new tariffs that some observers fear could spark an international trade war as impacted countries retaliate with tariffs of their own. Media reports also suggest that the US could impose tariffs on goods from the EU, though it is unclear when that could be.
The new duties will immediately impact cross-border supply chains in North America, imposing additional costs on the huge trade flows of vehicle parts and finished vehicles between Canada, Mexico and the US.
Industry analysts point to the heavy integration of the automotive supplier industry across North America and the impact of the new tariffs on cross-border shipments.
Trump’s first administration renegotiated the NAFTA into the US-Mexico-Canada Agreement (USMCA) which led to changes to rules on content thresholds but left cross-border duties at zero. Trade between the three nation’s automotive sectors was largely unaffected.
The new tariffs could have an immediate significant impact on costs and also influence companies’ investment strategies for the region.
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By GlobalData
However, there is some uncertainty over how much of the additional tariffs will make their way to final vehicle prices in the US. Some estimates suggest that the average price of a car sold in the US could rise by as much as US$3,000.
GlobalData analysts point out that general tariffs could impose big costs on US consumers and that they may yet prove to be temporary tools used by the Trump administration as part of a push for bilateral negotiations covering trade and other areas. The USMCA itself is scheduled for a renegotiation in 2026.
US vehicle market could lose a million sales a year
GlobalData analyst Jeff Schuster points out that over 50% of US vehicle sales are built in the US, while 23% come from USMCA partners Canada and Mexico. Japan and Korea account for 17% and Western Europe has around 5% exposure (mainly premium brands). “The proposed tariffs would cause vehicle prices to rise and choices to fall,” he says.
However, Schuster also believes that some of the tariff impact could be absorbed by manufacturers. “There could be some resourcing of production to the US where there is excess capacity and there could be some increase in prices of unaffected vehicles by a small amount to help offset the tariff impacts on vehicles that are directly impacted.
“There are certainly possibilities to manage this, but the reality is that the risk to the auto sector is pretty severe in the US. Consumers are expected to pay for most of the cost of any tariffs implemented and the annual US light vehicle market could lose as much as a million units on our latest analysis.”
