Editor Update: The Trump Administration agreed to pause tariffs on Canada and Mexico after DigitalDealer.com’s original story was published on Feb. 3. Canadian Prime Minister Justin Trudeau announced late on Monday afternoon that U.S. tariffs on his country’s goods would be postponed by 30 days as negotiations on a border deal took place. That announcement came after Mexican President Claudia Sheinbau negotiated a similar delay that morning.
With President Donald Trump ready to impose 25 percent tariffs on imports from Mexico and Canada, manufacturers are coming to terms with the effects it will have on the auto industry.
President Trump declared an economic emergency in order to place duties of 10 percent on all imports from China and 25 percent on imports from Mexico and Canada. Energy imported from Canada, including oil, natural gas and electricity, would be taxed at a 10 percent rate. Trump’s order includes a mechanism to escalate the rates charged by the U.S. against retaliation by other countries.
A tariff is a tax on imports, or foreign goods, brought into the U.S. The companies importing the goods pay the tariffs. In the past, companies would pass any additional costs on to consumers—raising the cost of vehicles and potentially reducing demand.
The tariffs, which Trump said are needed to stop the flow of fentanyl and immigrants into the U.S. as well as in the past saying the moves will help bring manufacturing jobs to the states, will go into effect on Tuesday, Feb. 5.
Auto Manufacturing in Canada, Mexico
The reason those in the auto industry are raising concerns is that around 90 percent of auto exports from both Mexico and Canada go to the U.S., according to the Mexican Automotive Manufacturers’ Association and the Canadian Vehicle Manufacturers’ Association. Nearly every major automaker operating in the U.S. has at least one plant in Mexico, including the six top-selling automakers. There are approximately 5.3 million light vehicles built in Canada and Mexico, with about 70 percent of these destined for the U.S.
“Regardless of timing, these blanket tariffs would have a massive impact on the auto industry,” S&P Global Mobility detailed in a report last week. “Virtually no [automaker] or supplier operating in North America would be immune.”
The industry is deeply integrated between the countries that make up the trade agreement among the U.S., Mexico and Canada trade agreement (USMCA) that replaced the North American Free Trade Agreement (NAFTA) during President Trump’s first term. For example, Mexico imports 49.4 percent of all auto parts from the U.S. and exports 86.9 percent of its auto parts production to the U.S.
Cost to Consumers
Wells Fargo estimates the tariffs would cost the Detroit Big 3 automaker billions of dollars a year. The firm estimates the impact of 5 percent, 10 percent and 25 percent tariffs on GM, Ford Motor and Chrysler parent Stellantis would collectively be $13 billion, $25 billion and $56 billion, respectively.
An a per car basis, S&P estimates a 25 percent duty on a $25,000 vehicle from Canada or Mexico would add $6,250 to its cost—some if not most of which could be passed on to the consumer.
On a percentage of sales basis, German automaker Volkswagen is the most exposed to tariff risk in Mexico, followed by Nissan Motor and Stellantis, S&P Global Mobility reports. VW has 43 percent of their U.S. sales being produced south of the border, Nissan 27 percent, Stellantis 23 percent, GM 22 percent, Ford, 15 percent, Honda 13 percent and Toyota and Hyundai at eight percent.
GM’s Playbooks
GM CFO Paul Jacobson said recently that the automaker has “a playbook” of plans it can tap in response to tariffs, including taking “down some of our international inventory in Mexico and Canada and expedite shipments to the United States.
“We build cars in Mexico, Canada and the United States,” added GM CEO Mary Barra. “We have the capacity in the United States to shift some of that. We also sell trucks globally, so we can look at those areas where we can mitigate some of” the impact of tariffs.
Various industry leaders released statements that supported President Trump’s efforts when it comes to job creation, illegal immigration and the fentanyl drug trade but believed the tariffs being leveled would not be the best path to accomplish those goals.
Industry Response
“If these tariffs are imposed, all vehicles and parts that comply with current USMCA trade agreement rules should be exempt, as they meet the strict standards originally negotiated by President Trump to support jobs and investment in the United States,” said Gov. Matt Blunt, president of the American Automotive Policy Council. “The strict USMCA…President Trump renegotiated in his first term has played a key role in bolstering the growth and competitiveness of American automakers. With their deep roots in the United States, automakers like Ford, GM, and Stellantis have invested tens of billions of dollars throughout the U.S. to meet the rigorous requirements.”
The Detroit Regional Chamber and its MichAuto affiliate urged Trump to use “the proven tools at hand such as the reopening of the USMCA and the direct input and involvement of our vital industry be utilized in a manner that does not stymie commerce and negatively impact companies and the consumer, but rather works toward solutions that preserve our strong trade partnerships and protect American jobs.”
UAW: Tariffs Masks Trump Anti-Worker Agenda
Shawn Fain, president of the United Auto Workers (UAW) union, argued that while his union was willing to support the Trump Administration’s use of aggressive tariffs to stop plant closures and curb the power of corporations that pit U.S. workers against workers in other countries, the President’s other policies leave American workers facing worsening wages and working conditions.
“If Trump is serious about bringing back good blue collar jobs destroyed by NAFTA, the USMCA, and the WTO, he should go a step further and immediately seek to renegotiate our broken trade deals,” said Fain. “We need to stop plant closures, bring back American jobs, and stop the global race to the bottom immediately.
“Any tariff action must be followed with a renegotiation of the USMCA, and a full review of the corporate trade regime that has devastated the American and global working class.”
International Reaction
As for the countries facing the tariffs, their leaders maintained the tariffs would not benefit any country. “The actions taken today by the White House split us apart instead of bringing us together,” Canadian Prime Minister Justin Trudeau said on the days the tariffs were annouced as his country would put matching 25 percent tariffs on up to $155 billion in U.S. imports.
“Problems are not resolved by imposing tariffs, but by talking and dialoguing, as we did in recent weeks with your State Department to address the phenomenon of migration; in our case, with respect for human rights,” Mexican President Claudia Sheinbaum wrote in a post on X while saying she had instructed her economy secretary to implement a response that includes retaliatory tariffs and other measures in defense of Mexico’s interests.
The Ministry of Commerce in China said it would file a lawsuit with the World Trade Organization for the “wrongful practices of the U.S.” and take measures to safeguard its rights and interests.
OEM’s in Canada and Mexico
Here is a list of auto makers with plants in Canada and Mexico, according to the Detroit Free Press:
- Ford: Ford has three plants in Mexico: its Chihuahua engine plant, and two assembly plants in Cautitlan and Hermosillo. It exported just under 196,000 cars from Mexico to North America in the first half of 2024, with 90 percent of vehicles going to the U.S. In Canada, it has an assembly plant in Oakville where it plans to produce a larger, gas-powered F-Series pickup truck from 2026.
- General Motors: In Canada, GM operates three plants, producing electric vans, the Chevrolet Silverado Heavy Duty truck, and the V8 engine and dual-clutch transmission for shipment worldwide. GM imported roughly 750,000 vehicles from Canada or Mexico in 2024 to the U.S., with most manufactured in Mexico. They include some of GM’s most popular vehicles, including the Chevy Silverado, GMC Sierra full-sized pickups, and mid-sized SUVs. GM’s Mexican plants also build two of its critical new electric vehicles, battery-powered versions of its Equinox and Blazer SUVs.
- Honda: Honda Motor sends 80 percent of its Mexican output to the U.S. market.
- Kia: South Korea’s Kia Corp. has a factory in Mexico that makes its own vehicles and some Santa Fe SUVs for its affiliate Hyundai Motor for export to the United States.
- Mazda: Mazda exported around 120,000 vehicles from Mexico to the United States in 2023.
- Nissan: Nissan Motor has two plants in Mexico where it makes the Sentra, Versa and Kicks models for the U.S. market. It produced nearly 505,000 vehicles in Mexico in the first nine months of 2024.
- Toyota: Toyota Motor builds its Tacoma pick-up truck at two plants in Mexico. It sold more than 230,000 of them in the U.S. in 2023, representing about 10 percent of its total sales in that market. Toyota used to produce the Tacoma in the U.S. but now ships all of them from Mexico.
- Volkswagen: Volkswagen’s factory in Puebla is the largest auto plant in Mexico and one of the largest in the Volkswagen Group. Nearly 350,000 cars were made there in 2023, including the Jetta, Tiguan and Taos, all for export to the U.S. In Canada, Volkswagen is building a battery gigafactory in St. Thomas, Ontario, investing up to $4.9 billion with a view to use the batteries for cars it sells in North America. Production is expected to begin by 2027.