Understanding how President Trump’s proposed tariffs on goods from Mexico and Canada could significantly disrupt the auto industry and escalate car prices begins with examining the supply chain of just one automotive part. Since the inception of free trade agreements in 1965 with Canada and 1994 with Mexico, automakers have built intricate production and distribution networks, free from border concerns. Each year, hundreds of billions of dollars' worth of raw materials, parts, and vehicles traverse the borders of these three countries—often multiple times—before the final products reach dealership showrooms.
Industry analysts, researchers, and trade groups warn that the proposed tariffs, which President Trump indicated would be implemented imminently, could increase the price of new cars by thousands of dollars and disrupt established supply chains. A vivid illustration of this issue can be seen in the journey of an aluminum ingot from Quebec, which could eventually find its way into a Chevrolet Silverado. This ingot is just one of approximately 30,000 parts that comprise every gasoline-powered vehicle.
According to Peter Frise, an engineering professor at the University of Windsor’s Automotive Research Center, car manufacturers strategically source materials where they can achieve the best price, performance, reliable delivery, and skilled workforce. For instance, much of the aluminum used in automotive production comes from Quebec, where the availability of hydroelectric energy provides a substantial source of cheap, reliable, and environmentally friendly power. In contrast, a significant amount of automotive steel is sourced from Pennsylvania, benefiting from its abundant natural resources, such as iron ore and natural gas.
The majority of car parts are cast and molded in Mexico, as noted by Flavio Volpe, president of the Automotive Parts Manufacturers’ Association. The relatively simple yet labor-intensive processes of heating and pouring materials into molds are more cost-effective in Mexico due to lower labor costs compared to Canada and the United States. Once these parts are produced, skilled machinists in areas like Detroit and Ontario refine them to meet manufacturers' precise specifications.
The interconnected nature of the North American auto industry is evident in trade statistics. In 2024, the United States exported about $105 billion in automotive vehicles, parts, and engines to Canada and Mexico, accounting for 62% of all U.S. exports in this category. Conversely, half of all U.S. imports of automotive goods, totaling around $238 billion, originated from these two countries.
However, international supply chains can often be vulnerable. Susan Helper, an economics professor at Case Western Reserve University and former senior adviser for industrial strategy in the Biden White House, points out that while tariffs can be beneficial for national security, the current implementation strategy is fraught with chaos. She emphasizes that the abrupt nature of these tariffs will lead to significant disruptions, particularly for the auto industry, which thrives on regulatory certainty.
The specific nature of the disruption caused by the tariffs will largely depend on their implementation details and any retaliatory measures from Canada and Mexico. Possible exemptions for certain goods and businesses or duty drawbacks—where tariffs are only applied to imported parts that aren't sourced domestically—could mitigate some of the impacts. Nonetheless, the latest plans from Trump do not appear to include such drawbacks, leading to uncertainty that complicates forecasting the tariffs' effects.
Jennifer Safavian, president and CEO of Autos Drive America, a trade association for international automakers with U.S. operations, highlights the challenges posed by the ambiguity surrounding the tariffs. With many unknowns—such as the timing, duration, and potential exclusions—it is difficult to accurately gauge the tariffs' impact on the auto industry, yet it is clear that there will be consequences.
It is important to note that not all automakers will experience the same level of disruption. Each manufacturer operates uniquely, and different vehicle models contain varying percentages of imported parts that may be subject to the new tariffs. Some manufacturers may opt to import more vehicles from countries unaffected by U.S. tariffs. However, Safavian points out that it is usually more economical for companies to manufacture products close to their customer base, which is why many international automakers have established factories in the U.S.
Shifting the entire production of a car model from one country to another is not a quick fix; such transitions typically take at least two years. The ongoing tariffs on goods from Canada and Mexico are part of a broader series of import taxes announced by Trump that may impact the auto industry significantly.
If these tariffs are sustained, manufacturers will need to adapt their supply chains to either reduce cross-border transactions or factor in the new tariff costs into their operations. As Frise notes, if a manufacturer can save just 8 cents on a part by sourcing it from a factory in Ontario rather than Arkansas, they will do so. However, if tariffs make sourcing from Ontario more expensive, costs will inevitably rise. Over time, these seemingly minor increases in cost can accumulate, affecting the final price of vehicles for consumers.
