DETROIT (AP) — President Trump’s trade policies are putting the American auto industry at risk.
If Trump implements a 25% tax on imports from Canada and Mexico, it could disrupt over $300 billion in automotive trade with these neighboring countries. This would not only hurt the supply chains that have been in place for decades but also raise the cost of new cars, which are already quite expensive.
Experts believe these tariffs could be a severe threat to auto production in North America. David Gantz from the Baker Institute warns that prices for every car built in the U.S. could rise. Kelley Blue Book estimates that the average new car price, close to $49,000, could increase by at least $3,000. For some vehicles, like full-size pickup trucks, the increase could be as high as $10,000.
The situation could worsen if Canada and Mexico respond with their own tariffs on American exports. According to Andrew Foran from TD Economics, this could create a challenging economic environment, potentially leading to recessions in our neighboring countries and stagnant growth in the U.S. His analysis suggests that U.S. auto sales could drop by over 10% if these tariffs go into effect.
North America has worked as a cohesive manufacturing region for decades, starting with the elimination of tariffs between the U.S. and Canada in 1965. Mexico joined this framework due to a 1994 trade pact and a newer agreement negotiated by Trump in 2020. This collaboration allows car manufacturers to take advantage of lower costs for materials and labor, making the region highly competitive.
Many companies have shifted production to Mexico. For instance, Ford assembles the Bronco Sport and Maverick pickup in northern Mexico, while General Motors produces popular models like GMC and Chevrolet trucks in central Mexico. In 2021, over half of the cars and light trucks the U.S. imported came from Mexico and Canada. These countries also accounted for more than half of U.S. auto exports.
Imposing tariffs on these imports would disrupt this complex supply chain. A White House official mentioned that the tariffs could apply each time goods cross the border, leading to accumulating costs and complications for auto manufacturers. This bureaucratic challenge could make everything more expensive, especially given that Trump plans to raise tariffs on foreign steel and aluminum as well.
Increased costs could negatively impact consumers. A decade ago, just 20% of Americans couldn’t afford a new vehicle, but now that number has jumped to 40%. Automotive leaders are certainly feeling the pressure. Ford’s CEO has expressed frustration over rising costs, while General Motors is strategizing to find ways to deal with the tariffs. Meanwhile, Stellantis believes these policies will ultimately boost American production and job growth.
Adding to the complexity, the auto industry is in the middle of a major shift toward electric vehicles. Many companies rely on profits from traditional cars to finance this transition. If sales decline due to rising car prices, it could limit funds available for investing in new technology.
Trump claims that these tariffs are not just about trade but are aimed at controlling illegal immigration and drug trafficking. However, analysts are skeptical of this justification. The majority of fentanyl seized at the U.S. border comes from Mexico, not Canada, where seizures are minimal.
Some believe Trump’s real motive is to strengthen his negotiating position for future updates to the USMCA trade agreement, which is set for renewal next year. Despite touting the USMCA as a victory, trade deficits with Canada and Mexico have actually increased. The proposed tariffs could serve as leverage to push for more production to occur in the U.S.
As the situation develops, the North American auto industry will likely face ongoing trade challenges and uncertainties.
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