Tariffs will negatively impact North American auto suppliers

The proposed tariffs on automotive goods from Mexico and Canada by President Donald Trump are expected to impact auto suppliers more than automakers. This situation could create serious issues for the entire auto industry. Most cars made in North America meet the United States-Mexico-Canada Agreement (USMCA) trade rules. However, only a smaller percentage of individual parts comply with these standards, which are necessary to avoid the new 25% tariffs starting on April 2. Many auto parts suppliers are urging the government to continue allowing tariff-free status for compliant goods. The automotive supply chain has faced challenges since the pandemic, including high interest rates, labor shortages, and reduced profits. There are many more suppliers than automakers. If suppliers face higher costs and have to shut down, it could disrupt car production. Some major suppliers have seen their stock prices drop significantly this year. Collin Shaw, president of the MEMA Original Equipment Suppliers association, highlighted that suppliers cannot absorb the new tariffs easily. In 2024, around 63% of vehicle parts from Mexico met the USMCA standards, compared to 92% of complete vehicles. For Canada, the numbers were 74.6% for parts and 96.9% for vehicles. Flavio Volpe, an advocate for Canada’s auto industry, warned that tariffs could shut down the industry, leading to potential legal battles. Shaw emphasized the difficulty in adjusting to policy changes and the lengthy process of moving or building new production facilities. Compliance with USMCA requires that a significant portion of vehicle components be sourced from the U.S., Canada, or Mexico. However, many smaller parts, like batteries and wire harnesses, often do not meet these requirements, which can lead to non-compliance. Overall, the auto industry is concerned about the potential increase in costs. Executives from major auto suppliers, including Magna, stressed that these tariffs would be disruptive and unsustainable for the industry. A recent survey indicated that many parts makers are experiencing financial stress due to existing tariffs on materials like steel and aluminum. If the tariffs continue, it could lead to higher prices for consumers and impact the entire supply chain.