US tariffs to push automotive prices higher

US tariffs on Canada and Mexico would likely lift automotive production costs noticeably higher as automakers and their suppliers rely on multiple cross-border shipments.

US president Donald Trump said over the weekend he would enact 25pc tariffs on imports from Canada effective 4 February, but delayed Mexican tariffs until at least March. An all-encompassing tariff on the two and potential retaliatory tariffs could severely hamper regional automotive producers, which draw from cross border flows for both raw materials including finished steel and aluminum as well as integral parts and components.

The tariffs are meant, in part, to drive more manufacturing back into the US — as General Motors chief executive Mary Barra said her company would likely do should the tariffs be imposed on Canada and Mexico. Other automotive manufacturers could possibly follow suit in order to escape the increased costs associated with tariffs.

But shifting operations from one country to another would be costly and time consuming. Some manufacturers produce parts for the same vehicle on different sides of the border, meaning even a car or truck assembled in the US could see its costs increase if it relies on parts made by the same company at a Canadian factory.

Completed vehicles

The US imported 2.855mn of its smaller passenger vehiclesfrom Mexico and Canada between January and November of 2024, according to customs data, or about 41pc of all such vehicles.

The two nations also accounted for the import of 1.16mn heavier vehicles designed for the transport of goods in the same period, or about 95pc of all of those vehicles.

Mexico alone sent 83,201 tractors to the US for the year-to-date 2024, roughly 39pc of the US total.

Automotive parts

Cross border flows of parts and accessories could be curtailed even more as they likely will have to cross in and out of the US in multiple stages, potentially receiving multiple 25pc tariff hits.

The US imported 3.4bn motor vehicle parts and accessories from the two countries or about 38pc of all such imports, and exported 3,073t of these parts back across the border to Canada and Mexico.

Nearly 90pc of the US' exports of spark-ignition piston engines, or 3.57mn units, were sent to Canada and Mexico, while 30pc of all US imports of such engines, or 2.26mn units, come from the two countries.

The US imported roughly 82pc or 43,582t of its cast-iron parts for internal combustion engines from Mexico.

Metal mounting and fitting imports for automobiles from Mexico alone represented 73pc of US totals, with the US in return exporting 64pc of such products back to Mexico. Canada took in 24pc or 29,035 metric tonnes (t) of the product.

The US acquired 40pc or nearly 36,000 of larger auto bodies and chassis from the two nations in 2024, while sending 57.5pc of its exports or 21,553 back across the same borders.

Alternatives limited

Although some alternative import sources do exist, many of these auto plants are located inland of key receiving ports and have closely tied operations that could require multiple stagged parts replacements.

Some vehicles are estimated to cross US borders into Canada and Mexico and back as many as seven or eight times before final assembly, according to a 2021 Congressional Research Service paper. China would be a major alternative supplier for US or Canadian automotive parts in multiple cases, including for internal combustion engines.

The US imported $87.1bn in light vehicles from Canada and Mexico and $77.5bn in automotive parts in 2022, according to a 2023 US International Trade Commission report. Any tariff could notably sting regional automotive producers just climbing out of multi-year low sales levels.

US total vehicle sales hit a seasonally adjusted annual rate of 17.22mn in December, the highest level since May of 2021, according to Federal Reserve data.

By Cole Sullivan and Zach Schumacher