President Donald Trump’s proposed tariffs on U.S. imports from Canada and Mexico could significantly raise domestic vehicle prices and squeeze profit margins for automakers, industry analysts warn.
If implemented, the 25% tariffs on Canadian and Mexican imports could add $6,250 to the cost of an average $25,000 vehicle, according to an analysis by S&P Global Mobility. The report suggests that automakers would likely pass most of the increased costs onto consumers, exacerbating affordability concerns in the automotive market.
“The automotive industry is at a critical juncture,” said Michael Robinet, vice president of forecasting at S&P Global Mobility. “The proposed tariffs could not only inflate vehicle prices but also disrupt production schedules, with estimates suggesting a potential 30% decrease in production for high-exposure vehicles once tariffs are enacted, even if only for the short term.”
On February 1, President Trump signed an executive order imposing the tariffs on Canadian and Mexican imports, alongside a 10% tax on Chinese goods. However, the White House announced a temporary suspension of the North American tariffs for at least a month to allow for negotiations.
Automakers Brace for Impact
While the temporary suspension offers a brief reprieve, the U.S. auto industry remains on edge. Ford Motor Company CEO Jim Farley cautioned during an earnings call that while the company could manage a short-term tariff impact, prolonged levies could erase profits, drive up prices, and slow economic growth.
“There is no question that tariffs at a 25% level from Canada and Mexico, if they’re protracted, would have a huge impact on our industry, with billions of dollars in profits wiped out and adverse effects on U.S. jobs and the entire value system in our industry,” Farley said. “Tariffs would also mean higher prices for customers.”
Farley noted that Ford has sufficient inventory to endure a few weeks without significant disruption, but in the long term, the company might need to shift production strategies, including establishing new plants in the U.S. to mitigate the effects of tariffs.
General Motors CEO Mary Barra echoed similar concerns, revealing that GM is evaluating supply chain restructuring to absorb potential cost increases. Auto parts manufacturer Aptiv also warned that tariffs could disrupt its supply chain, further complicating manufacturing processes.
Industry-Wide Consequences
In 2024, approximately 3.6 million light vehicles—22% of all cars sold in the U.S.—were imported from Canada and Mexico, with Mexico alone accounting for 15% of sales, according to S&P Global Mobility.
“The tariffs would really hit the automobile industry hard because the motor vehicle industries of the U.S., Mexico, and Canada are very intertwined,” said Marcus Noland, a trade policy expert at the Peterson Institute for International Economics. “Parts will cross the border seven to eight times before final assembly, and the tariffs are applied every time a part crosses—so costs would go up very quickly.”
Manufacturers could relocate some production to the U.S. to avoid the tariffs, but such a transition would require time and investment in new manufacturing facilities and labor. Noland warned that the economic fallout could extend beyond the auto sector, potentially destabilizing the Mexican economy and increasing illegal migration to the U.S.
Reshoring Challenges and Market Shifts
Reshoring production poses significant challenges, particularly due to higher labor costs and ongoing workforce shortages. Analysts expect automakers to invest heavily in automation and artificial intelligence to offset production expenses.
“Even before, there was a lot of investment pouring into new technology and automation,” said Duncan Angove, CEO of digital supply-chain firm Blue Yonder. “But because they realize they can’t pass the whole tariff increase along to the consumer, they are making these investments to reduce costs.”
Higher new car prices could also drive more U.S. consumers to the used car market, pushing second-hand vehicle prices higher.
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