President Donald Trump has suggested a straightforward solution for automakers facing tariffs: simply shift production to U.S. plants. However, this is far from a simple fix.
Tariffs are looming over the auto industry, with duties already implemented on steel and aluminum imports, and additional levies on cars from Asia and Europe on the horizon. For automakers, the uncertainty creates a challenging environment for investment. Import taxes on products from Canada and Mexico have also been a fluctuating concern, previously placed on hold but expected to be reinstated soon.
Despite pressures from the Trump administration to build cars domestically, transitioning production is not quick or easy. Ford CEO Jim Farley expressed that automakers are experiencing “a lot of costs, and a lot of chaos.” Understanding the future of tariffs is crucial for manufacturers deciding where to invest billions into new factories.
General Motors’ CFO Paul Jacobson shared that the constant changes in tariff policies make it difficult to make long-term decisions. They must think carefully about whether to shift production or build new plants. With uncertainties present, many automakers hesitate to commit to substantial investments.
Although steel and aluminum tariffs do not immediately impact automakers due to long-term contracts, prices are expected to rise. Recent increases in steel prices have already been significant, climbing over 30% within months, according to industry analysts. This cost will inevitably flow down the chain to consumers.
Changing production lines and reopening factories take years. For example, Stellantis recently agreed to reopen a plant in Illinois as part of a labor strike deal, but that plant won’t start production until 2027. Despite the administration’s claims of revitalizing the auto industry, U.S. plants already produce most North American vehicles. According to S&P Global Mobility, last year saw over 10 million cars built in the U.S., compared to just 4 million in Mexico and 1.3 million in Canada. There are about 1 million workers in American factories, producing not only cars but also key parts.
Half of the vehicles produced in the U.S. come from foreign-owned plants, an efficiency rather than a result of tariffs. Shipping costs play a big role in these decisions. For instance, producing lower-priced models in the U.S. could lead to such high costs that automakers might decide to stop making them altogether, limiting options for budget-conscious buyers.
A report by the Anderson Economic Group estimates that tariffs could increase the cost of “American” cars by $3,000 to $12,000 per vehicle. Such price hikes would impact consumers and could lead to fewer jobs in the long run, as manufacturers adjust production based on affordability. Additionally, many of the parts used in cars, even those produced in Mexico, often come from American manufacturers, meaning tariffs could have wider implications on employment.
Over the years, North American automakers have operated as if the three countries formed a single market. Under trade deals like NAFTA and USMCA, parts moved freely across borders. As a result, Mexico exports about $82 billion in auto parts to the U.S., while Canada contributes $19 billion. Conversely, American parts manufacturers send over $36 billion to Mexico and $28 billion to Canada.
The intricate system of parts distribution means there’s no such thing as a completely “American” car. US government guidelines track which parts are made domestically; however, even with relaxed rules, none of the vehicles exceed 75% domestic content.
While Trump insists that new plants are on the way, experts warn that implementing tariffs could have a severely detrimental impact on the industry. Ford’s Farley noted that a hefty 25% tariff could lead to unprecedented consequences for U.S. manufacturers. If these tariffs disrupt investments and manufacturing capabilities, the ripple effect could hit employment and vehicle prices hard.
As the situation unfolds, both consumers and automakers will bear the weight of these changes. Keeping an eye on the evolving landscape will be crucial for understanding the future of auto production and pricing in North America.
For more information, you can refer to the [S&P Global Mobility report](https://www.spglobal.com) and industry analysis from [Anderson Economic Group](https://www.andersoneconomicgroup.com).
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