As Trump Tariffs Loom, Auto Leaders Wait and SeeAs Trump Tariffs Loom, Auto Leaders Wait and See

President Donald Trump is roiling international markets, economies of several states and international diplomacy after less than two weeks on the job over his obsession with tariffs.

The president is declaring a state of emergency at the northern and southern borders, claiming illegal border crossings and fentanyl smuggling justify scrapping the United States-Mexico-Canada Agreement (USMCA) his trade representatives negotiated in his first term to replace the North American Free Trade Agreement.

Trump is invoking the International Emergency Economic Powers Act (IEEPA) to impose tariffs of 25% on goods imported from Canada and Mexico. It would take a two-thirds majority of Congress to revoke the emergency declaration.

The usually conservative-compliant Wall Street Journal Editorial Board called Trump’s tariff gambit, which includes a 10% tariff on Chinese goods and threatened tariffs on the European Union, “The Dumbest Trade War In History.” Trump responded by criticizing the WSJ on social media.

The impact on the U.S. auto industry in the short and medium term could be enormous if they stay in place for long, such as the length of Trump’s four-year term.

A 25% tariff on Mexico potentially would increase vehicle prices by thousands of dollars, reducing sales and affecting jobs. Mexico is a major assembly hub for vehicles sold in the U.S.

The domestic auto industry would be heavily impacted not only because of the vehicle assembly in all three countries, but also the supply chain extending across both Canadian and Mexican borders thanks to the two longstanding trade agreements.

Together, Canada, Mexico and China accounted for about $1.3 trillion worth of U.S. imports last year, or about 40% of the $3.2 trillion in goods crossing the border to companies and consumers.

The UAW is condemning Trump's tariff. "Any tariff action must be followed with a renegotiation of the (United States-Mexico-Canada Agreement), and a full review of the corporate trade regime that has devastated the American and global working class," says Shawn Fain, president of the UAW.

Michigan ranks second behind only Illinois for imports by dollar value from Canada, with $40 billion coming across the border. Michigan also ranks second behind Texas for Mexican imports based on dollar value. Michigan imports $64.3 billion worth of goods from Mexico, with $40 billion related to the auto industry.

Trump’s defense of his tariff threats is muddled with misinformation. The president says Canada has been unfair to the U.S., not allowing U.S. banks to do business north of the border, when in fact Bank of America, JP Morgan Chase, Citibank and Comerica are among banks operating in Canada. Trump also claims Canada doesn’t allow any U.S. agricultural products into their country. Canada is actually the U.S’s top export market for high-value agricultural products.

Trump also has often repeated an incorrect explanation of tariffs, saying foreign countries pay the tariffs into the U.S. Treasury, when in fact the tariffs are paid by the U.S. companies who import goods from foreign countries, with those added costs passed on in higher prices for consumers. Countries also place retaliatory tariffs on the U.S.

Analysts estimate vehicle prices, already averaging $50,000, will see a $3,000 average increase due to the tariffs.

Many political and economic analysts are betting the tariffs will be short-lived, and Canada and Mexico will come up with some border-security palliatives that will enable Trump to claim victory. Trump is meeting with Canadian Prime Minister Justin Trudeau today to discuss the tariffs.

"The auto industry is going to shut down within a week," says Flavio Volpe, president of Canada's Automotive Parts Manufacturers' Association. "At 25%, absolutely nobody in our business is profitable by a long shot."

Auto suppliers also have extensive manufacturing in both Canada and Mexico. Bosch NA, for example, has manufacturing for various sectors, including Mobility Solutions, Consumer Goods, Industrial Technology, and Energy and Building Technology. Aisin has three manufacturing facilities in Mexico and one in Canada.

Auto industry executives are preparing for the worst and hoping for the best.

General Motors CEO Mary Barra wrote to shareholders last week, highlighting the uncertainty the tariffs could introduce, noting a 25% tariff on Canadian and Mexican imports would increase assembly costs and potentially derail GM’s profit expectations for the upcoming year.

“In our conversations (with Trump and his regime), we have stressed the importance of a strong manufacturing sector and American leadership in advanced technologies,” Barra says. “It’s clear that we share a lot of common ground, and we appreciate the dialogue.”

Ford CEO Jim Farley says he is concerned about the tariffs. Despite the challenges, Farley emphasizes Ford has a strategic plan to address the potential tariffs and says the company is prepared to navigate the evolving trade environment. The situation “will play out over the next couple months,” Farley says.

Stellantis Chairman John Elkann recently met with Trump to discuss policy and the 25% tariff. Stellantis issued a statement after the meeting: "Trump's clear focus on policies that support a robust and competitive manufacturing base in the United States is hugely positive...we look forward to working with him on the crucial objectives of strengthening our industry and the nation's economy."

Playing Poker or Chess With Trade Policy?

When Trump’s trade policy team renegotiated NAFTA, some concessions were made to make it slightly tougher than NAFTA. That agreement required 62.5% of a vehicle’s components to be manufactured in North America to qualify for zero tariffs, while USMCA increased the requirement to 75%, pushing more production into North America.

The USMCA also ushered in a new labor agreement whereby 40%-45% of auto parts in vehicles sold in the U.S. must be made by workers earning at least $16 per hour.

Canada and Mexico have both said they will retaliate with tariffs of their own, and target goods that are produced in red states – automobiles produced in Kentucky, Tennessee, Kansas, Mississippi and Alabama – as well as agricultural products from Iowa, Nebraska and Kansas.