Trumps Trade Wars Just May Throw U.S. Auto Industry Under The Bus!

The looming threat comes from President Donald Trump's proposed trade wars, which could potentially disrupt over $300 billion in annual U.S. automotive trade with Canada and Mexico. The proposed 25% tariffs on imports from these two countries could dismantle supply chains that have been in place for decades and inflate the already high price of new cars.

According to The Washington Times, David Gantz, a fellow at Rice Universitys Baker Institute for Public Policy, has described the tariffs as an existential threat to North American auto production. He warns that they will increase the cost of everything thats imported from Mexico or Canada that goes into a car assembled in the U.S.

March 02, 2025

The potential economic fallout is alarming. Kelley Blue Book predicts that Trumps tariffs could inflate the U.S. price of the average new car already nearing $49,000 by $3,000 or more. The price of some full-size pickup trucks could skyrocket by $10,000. The economic strain would be further exacerbated if Canada and Mexico retaliated with tariffs on American exports.

Andrew Foran of TD Economics has written that a sustained 25% tariff on Canada and Mexico would have severe economic repercussions. He estimates that such tariffs would cause a 13.6% annual drop in auto sales in Canada and a 10.6% decrease in the United States.

Since 1965, when the U.S. and Canada eliminated tariffs on each others autos and auto parts, North America has evolved into an integrated auto manufacturing powerhouse. Mexico was incorporated into this regional trade pact in 1994 and again in a pact negotiated by Trump himself in 2020.

Brett House, a professor at Columbia Universitys business school, explains the benefits of this arrangement: The fact that you can tap relatively cheap steel and aluminum from Canada, that you can use the relatively low-cost labor in Mexico to assemble cars, and that you can leverage the high tech expertise and technology of the United States together, makes North America an incredibly competitive place to build automobiles.

However, Trump's proposed tariffs could disrupt this intricate manufacturing network. A White House official, speaking anonymously, confirmed that the taxes would apply each time goods cross the border from Mexico or Canada. This would result in escalating costs as auto components traveled from factories in the United States to Mexico or Canada and back again.

Adding to the complexity, the 25% tariffs on Canada and Mexico would be in addition to higher taxes Trump plans to impose on foreign steel and aluminum starting March 12. This would mean U.S. importers, including auto companies, would pay 50% duties on steel and aluminum from Canada and Mexico, significant sources of these metals.

K. Venkatesh Prasad, senior vice president of research at the Center for Automotive Research, warns that these higher costs could make new cars unaffordable for a significant portion of the American population.

The timing of Trump's trade war is particularly inconvenient for automakers, who are transitioning from gasoline-powered to electric vehicles. The tariffs could hinder sales and limit the funds available for the EV transition.

Trump, however, insists that the tariffs are not about trade, but about curbing the influx of illegal immigrants and fentanyl across U.S. borders. He stated on his social media platform, Truth Social, We cannot allow this scourge to continue to harm the USA, and therefore, until it stops, or is seriously limited, the proposed TARIFFS scheduled to go into effect on MARCH FOURTH will, indeed, go into effect, as scheduled.

Many analysts speculate that Trump has another objective: to renegotiate the 2020 U.S.-Mexico-Canada Agreement (USMCA) when it comes up for renewal next year. Despite Trump's portrayal of the USMCA as a victory, it failed to reduce Americas trade deficits with Canada and Mexico. The tariffs could provide him with leverage to pressure Canada and Mexico into accepting the USMCA changes he desires.