Trump's tariffs threaten collapse of US auto industry

In early March 2025, President Donald Trump announced the impending imposition of 25% tariffs on imports from Canada and Mexico, a move expected to disrupt over $300 billion in annual automotive trade between the U.S. and its neighbors. This decision threatens to wreck supply chains that have been in place for decades, raise the already high costs of new cars, and could have severe economic repercussions. Kelley Blue Book estimated that the average price of new cars in the U.S., which is already approaching $49,000, could increase by at least $3,000. The proposed tariffs have garnered attention for their potential to create an existential threat to automotive production in North America. Analysis from Andrew Foran of TD Economics highlighted the dire consequences of these tariffs, predicting a significant downturn in auto sales—projected declines of 13.6% in Canada and 10.6% in the United States. The ramifications would likely not stop at just sales decreases; a tit-for-tat escalation in tariffs from Canada and Mexico could push both nations into a recession while stalling the U.S. economy at the brink of stagnation. This looming economic storm raises questions about the long-term viability of the North American auto industry, which has become an integrated manufacturing entity over the past several decades. Many major automotive companies like Ford and Stellantis, which rely heavily on cross-border supply chains, voiced concerns about the ramifications of these tariffs on their operations. For example, Ford manufactures vehicles in Mexico, and any increase in import fees would escalate costs not only from assembly but also for materials that are transported across borders. This situation creates what Gantz termed an administrative and bureaucratic nightmare, complicating logistics for automakers and potentially leading to significant delays in production. Moreover, the sector is also grappling with rising material costs. Trump's existing tariffs on foreign steel and aluminum, which are set to increase on March 12, are expected to pile on additional financial burdens. Auto executives are already warning that more than 40% of the population cannot realistically afford new vehicles under current financial conditions. Companies like General Motors and Stellantis are considering various strategies to mitigate the effects of tariffs, though the uncertainty hangs heavily over the industry. In summary, the combined effect of the new tariffs on imports and the additional cost burdens from existing tariffs heightens the risk of a substantial downturn for the automotive sector—an industry that plays a pivotal role in the economy. There are growing fears that such policies will hinder the shift towards electric vehicles, as funds from traditional vehicle sales are critical for financing this transition. As firms brace for an uncertain future, the consequences of these economic policies will likely remain a topic of intense debate.