Trump's Tariff Threat: A Blow to U.S. Auto Industry?

As President Trump threatens a 25% tariff on Canadian goods, the U.S. auto industry braces for potential fallout. The auto industry is heavily reliant on cross-border trade, with parts and vehicles crossing borders multiple times during production. This complex supply chain would be disrupted by tariffs, leading to increased costs and potential slowdowns in production. Flavio Volpe, president of the Automotive Parts Manufacturers' Association, noted that a 25% tariff would be devastating for the auto industry, which operates on single-digit profit margins. He stated, "A tariff of 25 per cent is like talking about purple unicorns. I think we need to ignore the number, because cars would cease to be made by American companies if that came into effect."



The auto industry is particularly exposed to retaliatory measures from Canada and Mexico in response to Trump's tariff threat. A 25% tariff on imports from Canada and Mexico would increase the cost of finished vehicles, such as Toyota Tacomas made in Mexico and Chrysler Pacificas made in Canada. Additionally, it would affect parts, as the auto industry has built an entire supply chain in the United States, Mexico, and Canada working together to build these vehicles.

For example, wire harnesses, which are the nervous system of a car, are often made in the U.S., shipped to Mexico to be tied into precise bundles, and then shipped back into the U.S. to go into a seat or another component before being placed into the final car. This process involves many steps that happen on different sides of the borders, and concerns about tariffs and retaliatory tariffs could lead to increased costs and a slowdown in production, ultimately resulting in higher prices for customers at dealerships.