Automotive companies on both sides of the U.S.-Mexico border could feel the most pain if President-elect Donald Trump moves forward with his proposed 25% tariffs on all imports from Canada and Mexico once he takes office Jan. 20.
A 25% tariff imposed on parts and vehicles coming from Canada and Mexico to the U.S. would “break the entire system” of the North American automotive supply chain, said John Lash, group vice president of product strategy at e2open.
Austin, Texas-based e2open is a connected supply chain software platform.
“The automotive industry is actually one that’s going to get hit the hardest,” Lash told FreightWaves in an interview. “The reason I say they’re going to be kind of like a poster child of this is because, over the past few decades, the automotive industry has really gone and specialized on how to efficiently manage production between America, Canada and Mexico. If all of a sudden you get a 25% tariff on all parts, or automobiles that come from Canada and Mexico, that just breaks the entire system.”
Auto factories in the U.S., Canada and Mexico are dependent on parts moving back and forth across the borders multiple times before a vehicle is ultimately assembled, Lash said.
The U.S.-Mexico automotive supply chain includes global automakers such as General Motors, Ford, Toyota, BMW, Nissan, Volkswagen, Stellantis, Freightliner, Kenworth and Navistar. (Photo: Jim Allen/FreightWaves)
The automotive industry plays a major role in the North American economy. The automotive sector contributed more than $809 billion to the U.S. economy in 2023 and accounted for 11% of total manufacturing output, according to a report from the U.S. Trade Representative.
The U.S.-Mexico automotive supply chain includes automakers such as General Motors, Ford, Toyota, BMW, Nissan, Volkswagen, Stellantis, Freightliner, Kenworth and Navistar — companies that have factories on both sides of the border.
“The automotive industry is responsible for 9.7 million direct and indirect U.S. jobs. Additionally, industry estimates that every job with an auto manufacturer in the United States creates on average nearly 11.5 other jobs upstream (e.g., auto parts producers) and downstream (e.g., auto dealerships) in the U.S. economy,” the USTR report said.
In Mexico, the automotive sector contributes almost 4% annually to the country’s gross domestic product and 20.5% of the manufacturing GDP, according to the Mexican Association of the Automotive Industry. The auto industry employs more than 900,000 people directly and generates millions of indirect jobs.
From January through November, auto factories in Mexico produced 3.7 million units and exported 3.2 million vehicles, the National Institute of Statistics and Geography said. The U.S. import market accounted for about 80% of passenger vehicles assembled in Mexico and 95% of commercial trucks.
Mexico’s National Auto Parts Industry, an organization that represents 700 auto parts makers in the country, predicts the automotive industry will produce $126.1 billion in goods in 2024, a signigicant increase compared to 2023, reported Mexico Business News. The U.S. accounts for over 40% of automotive parts exported from Mexico.
For the week of Dec. 14, U.S. shipments of finished vehicles and auto parts totaled 16,009 rail carload shipments, according to SONAR’s RTOMV.USA index. It was a 27% week-over-week increase.
In Mexico, shipments of finished vehicles and auto parts increased about 15% week over week to 2,719 carloads.
SONAR: U.S. and Mexico rail volumes (RTOMV.USA and RTOMV.MEX) for finished vehicles and auto parts have been trending higher week over week in December. To learn more about SONAR, click here.
“It’s really simple and easy to say, ‘We’re going to put this tariff on things … it’s going to be good for the country, it’s going to generate revenue,’” Lash said. “But there are all of these hidden consequences, and there’s structural, long-term investments that you don’t know. You don’t shift supply chains overnight. How long does it take to build a factory? It’s three years, four years. It’s not like you just shift them and move these things around. You put them in place, and then it’s a long-term investment for it.”
Related: Mexico’s automotive industry exports 289,309 vehicles in November
Lash said other cross-border industries that could be affected by Trump’s proposed tariffs are lumber producers and oil and gas suppliers.
“Tariffs have some really important uses. … [T]he ones that really come top of mind is to protect against unfair trade practices,” Lash said. “When you think of the lumber side of things, Canada and the U.S. have been in a trade war essentially since the 1980s.”
Tree growers in the U.S. allege that the lumber industry in Canada is being subsidized by the Canadian government, allowing tree producers to sell timber in the U.S. at below-market prices.
In August, the Biden administration raised tariffs on lumber from Canada to 14.5%.
“The National Association of Home Builders said this is really going to kill affordability, because it’s going to drive the houses, the construction costs, the material costs of homes, up,” Lash said. “We already have an affordability crisis. Well, guess what? If tariffs go up by 25%, that’s not good for affordability.”
Trump’s tariff threat could shake up the cross-border agrifood trade across North America, according to David Dienesch, CEO and chief agent at Allianz Trade in Canada.
Canada’s agricultural crops (wheat, canola, barley, corn and soybeans) have had steady demand over the past year from international markets driven by the war in Ukraine.
The agrifood sector in Canada represents about 7% of Canada’s GDP and includes agriculture, food manufacturing, food services, as well as wholesale and retail sales of food commodities. Canada’s agrifood sector employs about 2.3 million people.
“Food is one of the top imports of the U.S. from Canada. It’s roughly $30 billion a year; it’s a big sector,” Dienesch told FreightWaves in an interview. “If I add the tariffs as they’re being projected right now, that’s going to increase energy prices too. For U.S. food producers, that’s a recipe for inflation. … [T]he result is going to be higher prices for you when you go to the grocery store and a ripple effect overall in the supply chain.”
Paris-based Allianz Trade is a global provider of trade credit insurance and a specialist in surety, debt collection, fraud insurance, structured trade credit and political risk.
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