“Unthinkable” Comes True: 25% Tariffs on Canada and Mexico Put Auto Market on Uncharted Road

Tariffs of 25% across North America – depending on how long they last¹ – could likely upend the auto market in the United States and the larger economy. As previously reported, the North American auto market has enjoyed 30 years of free trade, so new tariffs in place for any significant length of time will be disruptive.

Roughly 44% of the new vehicles sold in the U.S. last year were imported from countries across North America, Europe and Asia. And the automotive business involves a large and complex global supply chain, so new tariffs will challenge an industry that is already facing high costs. Higher costs translate to fewer affordable options for consumers, and higher costs mean lower sales volume.  

Cox Automotive’s Economic and Industry Insights team is closely monitoring this evolving story and, when appropriate and possible, is providing fresh perspectives based on the latest information. In February, the team posted initial thoughts:

Auto Industry Faces Uncertainty as Tariff Decisions Remain Unclear (published Feb. 18, 2025)

Tariffs Across North America Will Upend the Auto Industry (published Feb. 4, 2025)

¹On March 5, the White House granted a one-month delay for tariffs on automakers meeting the USMCA’s rules of origin. The Cox Automotive Economic and Industry Insights team is monitoring tariff developments and will provide updates, as necessary.

Recent Comments from Our Team

Jonathan Smoke, Chief Economist

“For economists like myself, the unthinkable is coming true, with tariffs being applied to our free trade partners across North America. We have no history to study for this, but there will be implications. It is not even clear if the U.S. government has a way to efficiently track the movement of goods and impose duties, but set that aside: Production will be disrupted, supply will be restricted, and prices will go up.

This is happening at a moment when supply is tight already, and just as tax refund season approaches critical mass in dollars being distributed to consumers. Consumers with potential buying plans are very likely to act swiftly, so the short term is likely positive for sale volume. But once prices shift higher, demand will decline. Pending on how long this tariff stance lasts, it will also jeopardize the trajectory of the overall economy, further weakening growth potential later in the year.”

Erin Keating, Executive Analyst

“New tariffs hitting the U.S. borders are certainly troubling for the North American automotive market, as we know it will add substantial input costs to automakers which inevitably have to be passed along in some capacity to the consumer. Now comes the ultimate test: The industry’s ability to contain the tariff-driven price increases, with the uncertainty of how long these tariffs stay intact and to what degree they are able to be assessed at the border, given the complexity. Ultimately, it is the volatility in policy that is most damaging to the automakers’ ability to strategize for the future; the uncertainty is far worse than knowing what hand they’ve been dealt.”

Charlie Chesbrough, Senior Economist

“Through much of 2024, many of the key metrics for the auto industry were returning to long-established norms. New-vehicle inventory had mostly recovered from the pandemic shortages; sales volumes and incentives were both increasing, as expected. And while new-vehicle prices are elevated compared to 2019, new vehicle price inflation was relatively tame in 2024, with transaction prices in January 2025 below levels measured in January 2023. But here we go again. Just as the industry seemed to be finding stable ground, new obstacles are thrown in place. How long higher tariffs are held in place is the industry’s big question right now. Higher prices and border disruptions could result in lower volume. Our forecast of 16.3 million new-vehicle sales in 2025, at least at this moment, is now in question.”