Automakers ship billions of dollars’ worth of vehicles and parts across the U.S. borders with Canada and Mexico every day. President Trump’s plan for 25 percent tariffs on imports from those countries could severely disrupt those operations.
On Monday, hours after his inauguration, Mr. Trump said he planned to impose the tariffs beginning Feb. 1. Now the question is whether he will follow through — or what terms might keep him from doing so.
“Most people in the industry are waiting to see what happens and to see what the administration is looking for from Canada and Mexico,” Mark Wakefield, global automotive market lead at AlixPartners, a consulting firm, said on Tuesday. “For now they assume this is more a negotiating chip than it is something that’s really going to happen, more of an exercise to bring people to the table.”
General Motors and Ford Motor declined to comment on the matter. Both companies produce significant numbers of vehicles and components in Canada and in Mexico, and both ship vehicles and parts from plants in the United States into those countries.
In theory, tariffs would force automakers to move production to the United States and ultimately create more jobs. But re-engineering cross-border supply chains, which are designed to deliver parts to car factories only hours before they are installed in vehicles, would be extremely difficult and costly.
And in the short run, tariffs on vehicles and parts from Canada or Mexico would lead to higher prices at dealerships and lower demand for cars. Rather than protecting U.S. auto workers, as Mr. Trump has promised, tariffs would lead to job losses because automakers would cut their work forces to compensate for slumping sales, analysts said.
“Ultimately what happens is you sell less units and therefore you need less people,” said Simon Geale, an executive vice president at Proxima, a consultancy that focuses on supply chains.
The impact of tariffs would depend on how steep they are and how they are applied. A 25 percent tariff on a $5 part would, by itself, not be that big a deal. But a 25 percent tariff on a fully assembled vehicle made in Mexico would almost immediately force a 25 percent increase in the sticker price of the same vehicle. Automaker profit margins are thin and they would have little choice but to pass the cost of tariffs on to their customers.
“Tariffs will inflate car prices that many potential buyers already think are too high,” said Erik Gordon, a business professor at the University of Michigan who closely follows the auto industry. “People will keep their old cars longer. That will be good for repair shops — where dealers often make more money than they do selling a new car — and put a lid on sales and production of new vehicles.”
North American automaking has been essentially transnational for three decades, first under the North American Free Trade Agreement and since 2020 under the United States-Mexico-Canada Agreement, a rewrite engineered by Mr. Trump.
Mr. Wakefield said about $150 billion worth of vehicles move annually from Canada and Mexico across the border into the United States. Vehicles sometimes go back and forth between the United States and Canada several times in the course of manufacturing.
Imposing tariffs would affect nearly every vehicle produced and sold in the three countries. About half the components in U.S.-made vehicles, measured by value, are imported — primarily from Mexico, Canada and South Korea, according to a recent report by industry analysts at Bernstein.
G.M. produces about 25 percent of its pickups for the U.S. market in Mexico and another 15 percent in Canada. Ford makes about 12 percent of its pickups in Mexico and Canada and would be somewhat less affected. Ford makes its electric Mustang Mach E in Mexico.
Pickups are among the most popular and most profitable vehicles sold by the U.S. automakers.
“The industry has operated on the assumption that North America is a free-trade zone for decades,” Mr. Wakefield said. “A 25 percent tariff would be a material change for just about every manufacturer.”
Automakers had to deal with tariffs on Chinese goods during the first Trump administration and to some extent during the Biden presidency. They have had time to prepare, which could blunt some of the impact.
Hyundai Motor built a $7.6 billion factory complex near Savannah, Ga., in part to insulate the company from changing government policy. The decision to invest was made during the previous Trump administration, José Muñoz, the chief executive of the South Korean company, said in an interview in January.
Hyundai factories in the United States get most of their supplies and components from within the United States, Mr. Muñoz said. “The best solution to avoid any problem is to localize your investments,” he said.