Commentary & Voices
Tariffs Across North America Will Upend the Auto Industry
Tuesday February 4, 2025
While the tariff story continues to evolve, the chapter written earlier this week was good news for the auto industry. Massive 25% tariffs were not implemented against goods from Canada and Mexico, at least not yet. And that is good news for everyone involved, as there is little doubt: Tariffs of 25% across North America would significantly upend the auto market in the United States and the larger economy.
The North American auto market is a massive, three-nation web of suppliers and production hubs that has been 30 years in the making, an idea first floated by President Reagan and finally enacted by President Clinton. It is an operation built on free trade, and new tariffs would certainly throw a spanner in the works.
While the threat is still in place, the Cox Automotive team remains confident that compromises will be worked out in due time and any tariff pain will be the short-lived, not long-term, policy adopted by the United States. Ultimately, the stakes are too high: Of the 50 best-selling models in the U.S. market, which accounts for about 60% of the market volume, half would be directly impacted by the tariffs, and that does not even begin to account for all the auto parts that move freely across the borders today, ensuring good jobs and high wages throughout North America. No mainstream automaker will be immune to the pain, which will almost certainly be transferred to buyers in the form of higher prices. The U.S. auto market already has an affordability problem; artificially raising costs will only exacerbate the issue.
Worse still, significant tariffs focused on the auto industry will disproportionately impact our market’s most affordable vehicles. Our analysis suggests that 40% of vehicles priced under $40,000 will be directly impacted. Of new vehicles priced under $30,000 – there are 20 of them – 10 will be hit hard. Our estimates suggest the average tariff on models assembled in Canada or Mexico, or with reported content from those countries, would increase the cost of a vehicle by $5,855. This amounts to 16.6% of an average new-vehicle price, but it ranges from 3% to 25%. Will transaction prices increase by 16%? It’s hard to say. It is likely that not all the costs will be passed directly to buyers, but one reality is hard to ignore: Prices will go up for suppliers, for automakers and for buyers. The impact on “affordable” vehicles would likely make many of them unviable in the U.S. market.
On a trade basis, our team has estimated that 25% tariffs at the border of Canada and Mexico would have impacted $309 billion in trade in 2024, or roughly 40% of the U.S. new vehicle market. Our analysis does not include the impact on parts, which would be significant indeed and also directly impact auto repair shops across the U.S.
If history is a lesson, the Trump Administration will continue to threaten tariffs, and many countries will reply in kind with tariffs of their own, as China has already demonstrated. Ultimately, in a global automotive business that relies on a large and complicated supply chain, higher tariffs will only challenge further an industry already wrestling with high costs and small margins.