FRESH

Friday, February 7, 2025
Logistics

Automakers taken for a spin following tariff announcements

The U.S. automotive industry is bracing for a massive shake-up after President Donald Trump announced a round of tariffs on imports from Canada, Mexico and China.

Initially set to take effect on Tuesday, the new measures impose a 25% duty on goods from Canada and Mexico, in addition to raising tariffs on Chinese imports by 10%. The tariffs were justified by Trump as a response to concerns over these countries’ roles in fentanyl trafficking, illegal immigration and trade imbalances.

Following a conversation with Trump on Monday, however, Mexican President Claudia Sheinbaum said tariffs against Mexico will be put on hold for a month. Sheinbaum announced that her government had agreed to send 10,000 National Guard troops to the U.S.-Mexico border to stem the flow of drug trafficking. At the time of writing, no such relief has been announced for Canada.

Trade war and peace (and war again)

While many industries will doubtless be affected by the new tariffs, the automotive industry is uniquely vulnerable. Emboldened by the 1994 signing of the North American Free Trade Agreement (NAFTA), the Big Three automakers — General Motors, Ford and Stellantis — have developed sprawling, cross-border supply chains that range from Canada to Mexico.

Roughly 40% of Stellantis’ vehicles are imported from Mexico or Canada, per analysis by Bank of America. GM imports slightly fewer than a third of its cars and trucks, while Ford brings in about a quarter.

Prior to his first election in 2016, Trump campaigned on renegotiating NAFTA, which he criticized as “perhaps the worst trade deal ever made.”

In a 2018 speech announcing the end of these renegotiations, Trump argued that, since the signing of NAFTA, the U.S. had “racked up trade deficits totaling more than $2 trillion” with Canada and Mexico, losing “4.1 million manufacturing jobs and 1 in 4 auto jobs.”

The agreement that arose from these talks, called the United States-Mexico-Canada Agreement, went into effect in July 2020. 

The USMCA had preserved duty-free automotive trade while imposing stricter rules of origin for automobiles, which mandated that 75% of a vehicle’s value had to be sourced in a North American country. The agreement also mandated a minimum wage of $16 per hour for many autoworkers, helping U.S. manufacturers compete with low wages in Mexico.

But, as should be obvious after recent developments, the USMCA did not secure a lasting peace between the U.S. and Mexico.

U.S. critics, including Trump and former President Joe Biden, suspected that China was using Mexico as a back door to circumvent U.S. tariffs on its exports. Moreover, these critics accused Mexican auto manufacturers of relying on Chinese steel and aluminum in violation of the USMCA’s rules-of-origin provisions.

Automakers set their houses in order

Prior to Sheinbaum’s announcement of the one-month pause on tariffs against Mexico, market reactions to the tariffs were swift and negative. 

Auto stocks fell sharply, with shares of GM — which has the largest exposure to Mexico by number of vehicles produced — tumbling 7.9% in pre-market trading. Although GM has clawed back some of its losses, it remains below Friday’s closing price of $49.46 at the time of writing.

Analysis from Bank of America projects that the new tariffs, when or if they come into effect, could inflate the price of vehicles sold in the U.S. by $3,300 on average. Such inflation could lead to a yearly decline in auto sales by 1 million.

Even cars assembled in the U.S. are not exempt from tariff shocks, as industry data indicates that components from Mexico and Canada account for roughly 10% of the value of U.S.-manufactured cars, with an additional 5% to 6% coming from Chinese inputs.

Given the one-month stay of execution for Mexican imports, automakers could be expected to expedite shipments and frontload inventories as much as possible. 

On a Jan. 28 earnings call, GM CEO Mary Barra said that “we are working across our supply chain, logistics network and assembly plants so that we are prepared to mitigate any near-term impacts,” but she cautioned against making large capital expenditures without greater policy clarity, highlighting the uncertainty facing the industry.

As the situation continues to evolve, staying informed will be critical for navigating the complex interplay of trade policy, market dynamics and industry strategy in the automotive sector.

For the latest updates on how these tariffs are reshaping the automotive landscape and their implications for industry stakeholders, readers are encouraged to subscribe to FreightWaves’ industry newsletters and market forecasts.

The post Automakers taken for a spin following tariff announcements appeared first on FreightWaves.

Related Posts

Load More Posts Loading...No More Posts.