Rising Costs in the Automotive Supply Chain
In a recent Wall Street Journal piece titled “Tariff Threat Prompts Automakers to Find New Suppliers, Consider Higher Prices,” Vanessa Miller, a partner at Foley & Lardner LLP, raised alarms about rising costs in the automotive supply chain due to proposed import tariffs.
Teaming up with Ki Lee Kilgore, Miller discussed strategic contractual adjustments companies may need to consider amidst escalating tariffs and ongoing trade disputes.
The newly suggested 25% tariffs on imports from Mexico and Canada, initially announced by President Trump and then put on hold for a month starting February 3, could be a major financial hurdle for automakers.
Experts believe that these tariffs could saddle the industry with daily losses of up to $110 million, culminating in a staggering annual toll of $40 billion.
A senior official from Linamar, a prominent Tier One supplier in Canada, warned that production halts might hit North America within just a week after the tariffs take effect.
Furthermore, consumers might see the price of new vehicles jump by at least $3,000, with some models possibly costing as much as $10,000 more.
Impact on Automotive Exports and Major Players
An article from Automotive News elaborated on the differing reactions from automakers and their suppliers regarding the anticipated impact of tariffs on the North American automotive landscape.
In 2024, automotive exports from Mexico soared to $193.9 billion, nearly 30% of U.S. imports from the country, according to data from INEGI.
Similarly, vehicles and auto parts accounted for 21% of Canadian exports to the U.S. over the first eleven months of 2024, with Canadian automotive exports surpassing the $100 billion mark in 2023.
Notably, approximately four major automakers produce around 40% of their vehicles in Mexico and Canada.
General Motors, in particular, appears vulnerable to the proposed tariffs.
In 2024, GM reported selling 2.7 million vehicles, with over 653,000 assembled in Mexico for the U.S. market and at least 235,000 for other international destinations.
High-volume imports to the U.S. include popular models like the Chevrolet Equinox, Blazer, Silverado, and GMC Sierra.
Interconnected Supply Chains and Retaliatory Measures
TD Economics conducted an analysis revealing that nearly half of the light vehicles exported from Mexico to the U.S. in 2024 came from automakers based in Detroit.
This highlights the intricate interconnections within the North American automotive supply chains, where components often cross U.S., Canadian, and Mexican borders multiple times—typically seven or eight—before arriving at the final assembly stage.
Given this deep network of dependencies, the automotive sector stands to face some of the most significant consequences once the tariffs are enacted.
In addition, the Trump administration’s announcement of a new 10% tariff on imports from China has prompted a potential retaliatory response; China might impose similar tariffs, including a 10% tax on certain large-engine light vehicles and electric trucks manufactured in the U.S.
On January 28, Sean Duffy, a former congressman and Fox News contributor, officially took the reins as Secretary of the U.S. Department of Transportation.
His inaugural act directed the National Highway Traffic Safety Administration (NHTSA) to re-evaluate the existing Corporate Average Fuel Economy (CAFE) standards for vehicles produced from the 2022 model year and onward.
On January 24, the Trump administration turned to the U.S. Supreme Court to request a temporary hold on three ongoing legal cases while the Environmental Protection Agency reviews past regulatory decisions, particularly those related to the Clean Air Act waiver that grants California the authority to establish its own greenhouse gas emissions standards for vehicles.
Preliminary figures indicate that U.S. sales of new light vehicles in January reached an annualized rate of about 15.8 million units—an increase of 5% from the previous year, yet still falling short of industry predictions.
Source: Natlawreview