During remarks at a Wolfe Research conference last month, Ford CEO Jim Farley made it clear how President Trump’s tariff proposals will affect one of the most prolific of Detroit’s Big Three and any other automaker that sells to American motorists.
For weeks prior to the conference, Trump threatened 25% tariffs on goods originating from Canada and Mexico—save for a 10% carveout for Canadian oil.
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“Let’s be real honest: Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we’ve never seen,” Farley said.
As far back as November 2024, he justified the penalties by blaming the three countries for the U.S. drug crisis and its immediate neighbors for cross-border issues such as illegal immigration.
On February 4, President Trump and the respective cross-border leaders reached agreements to pause the tariffs for one month after they presented him with initiatives to help curb the issues.
US President Donald Trump in the Oval Office of the White House. 25% tariffs affecting imports from Canada and Mexico penned by his administration are set to go into effect on March 4.
New cars may get more expensive under Trump’s tariffs
According to a new study from Anderson Economic Group, the risk of punitive trade policies can cause much more consequential damage to the U.S. auto industry in the long run than Union-organized work stoppages.
According to data from Bank of America Global Research, American automobile manufacturing, alongside the manufacturing of electrical equipment and appliances, is at the most risk of harm from the U.S. tariffs, as 24% of the revenue in auto, electrical equipment, and appliance manufacturing comes from imports.
In their analysis, AEG’s researchers looked at the foreign-made content in vehicles, the effects of layered tariffs (25% on Canadian and Mexican imports, 10% on Chinese parts on top of existing 25% tariffs), and the broader impact on vehicle affordability.
They found that the new tariffs can cause a full-blown price crisis. AEG projects that with new tariffs, the cost of a new car could jump anywhere between $1,000 and $9,000 per unit, and that the upper end of the range is very likely.
“For a full-size SUV with significant Mexican content, the added cost is nearly $9,000,” Anderson stated. “And if manufacturers fail to adjust production or shutter assembly lines, that figure could exceed $10,000.”
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The American car industry supply chain is an international affair
Cross-border affairs can be traced back to the Johnson administration. In 1965, U.S. and Canadian leaders signed the Canada–United States Automotive Products Agreement or Auto Pact, which allowed most new cars and parts to be shipped duty-free between the U.S. and Canada.
When Mexico was added to the mix with the signing of NAFTA in 1994 and further strengthened with the signing of the USMCA in 2019, North America became a car industry powerhouse that leveraged the industrial and economic strengths of the three respective countries.
“The fact that you can tap relatively cheap steel and aluminum from Canada, that you can use the relatively low-cost labor in Mexico to assemble cars, and that you can leverage the high tech expertise and technology of the United States together, makes North America an incredibly competitive place to build automobiles,” Columbia Business professor Brett House told the AP.
Related: Tariffs could make these popular cars more expensive
As a result, many of our favorite American-badged cars have parts that originate from different countries.
For instance, the Kentucky-made Chevrolet Corvette sports car can be configured with a dual-clutch transmission that is made in St. Catharines, Ontario, Canada. At the same time, diesel versions of the Ford Super Duty pickup trucks contain an engine made in the Chihuahua Engine Plant in Mexico.
Last year, the U.S. imported around 8 million vehicles, and over half of them came from Mexico and Canada.
But alongside popular cars from Detroit’s Big Three, like Ford’s (F) Bronco Sport and Maverick, Chevrolet’s (GM) Silverado, and Stellantis’s (STLA) Jeep Wagoneer S, European and Japanese brands also produce cars in the Great White North and south of the border.
For example, Japanese auto giant Honda (HMC) imports the HR-V compact crossover and Prologue electric vehicle (from one of GM’s factories) from Mexico, as well as the Civic sedan and hatchback and the CR-V crossover SUV from Canada.
BMW also manufactures some models at its San Luis Potosi, Mexico, factory, including the 2-Series coupe, the high-performance M2, and the 3-Series sedan.
Related: Jeep, Dodge exec has a solution for Trump’s bold car industry plan
American automakers call for meaningful reform
Though the President intended for the tariffs to boost American automakers, some auto executives noted that they would have to make expensive changes if tariffs persist.
In recent remarks, General Motors CFO Paul Jacobson noted that the automaker won’t feel the effects of temporary tariffs but will have to consider relocating assembly plants if they become somewhat permanent.
During Stellantis’s latest earnings call, Elkann said that tariffs affecting Canadian and Mexican production is a step too far. As a solution to help boost American manufacturing, the chairman suggested that Trump focus on imported vehicles that do not contain any American parts.
“[…]the real opportunity set for the administration in order to really boost jobs in America and manufacturing opportunities and investments is by closing the loophole that currently allows approximately 4 million vehicles into the country with any US content,” he said.
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