Barring a last-minute change of mind, the White House has signaled Pres. Donald Trump will announce new tariffs targeting America’s largest trading partners, Canada and Mexico, on Tuesday. The move is expected to increase the cost of many common goods substantially, including not only fully assembled vehicles imported from America’s nearest neighbors but other cars, trucks and crossovers assembled in the U.S. That’s because virtually all of those models rely on at least some Mexican and Canadian parts, components and raw materials.
General Motors could be hit hard by a 25% tariff since it imports more than 350,000 vehicles annually from Mexico.
After postponing plans to enact new tariffs on Canada and Mexico a month ago, Pres. Donald Trump is ramping up his trade war with America’s closest neighbors and largest trade partners. Over the weekend, Trump launched a probe into imported lumber, roughly half of it coming from Canada. But he’s expected to take things to a new level this week.
On Tuesday, March 4, the White House indicated, the president will follow up on threats made a month ago to enact new tariffs on the two neighboring nations, Commerce Secretary Howard Lutnick telling Fox News over the weekend that, “There are going to be tariffs on Tuesday on Mexico and Canada. Exactly what they are, we’re going to leave that for the president and his team to negotiate.”
While details are yet to be announced, the White House previously signaled upcoming tariffs would hit the auto industry hard. Trump has already taken steps likely to raise vehicle production costs with tariffs on all imported aluminum and steel. The new tariffs, focused on Mexico and Canada, may cover everything from other raw materials to finished vehicles. While manufacturers might absorb some of the costs, analysts warn that vehicle prices are bound to increase – even on many models assembled in the U.S.
So, if you’re looking to purchase a new vehicle, don’t be surprised to see many models go up in price, some by thousands of dollars, in the coming months. And there’s even the possibility some products will be pulled from the market, especially low-cost entry models.
Sowing confusion
Trump has sent confusing signals about tariffs. He’s also falsely claimed countries like Canada and Mexico would pay higher duties. Consumers end up paying what amount to higher taxes.
President Trump has created confusion about what his actual plans are. He originally planned to announce new Canadian and Mexican tariffs of 25% a month ago, then backed off. He claimed to have reached a settlement with the two nations, among other things, to clamp down on illegal border crossings. Critics noted that all the details the White House announced simply reaffirmed agreements made during former Pres. Joe Biden’s administration.
After deciding to delay any new tariffs against the two neighboring countries, Trump then announced tariffs on imported steel and aluminum – much of it coming from Canada. He then launched an investigation into lumber imports, half of that material also coming from Canada.
Trump last week said new tariffs would be announced in April. He and Lutnick subsequently shifted to the March 4 deadline, new tariffs now expected to go into effect at 12:01 AM – though precisely what the tariffs might be has yet to be revealed.
What’s coming?
Tariffs won’t target just Mexican and Canadian-made vehicles. Imported parts and components will also be taxed.
One thing seems clear, Trump indicating he will double the new 10% tariffs on Chinese imports that were announced on February 4.
As for Canada and Mexico, the administration may back down from the original target of a broad-stroke enactment of 25% tariffs. The administration is suggesting the final details are subject to ongoing negotiations.
Automobiles and auto-related parts, components and raw materials are expected to be high on the final list. Currently, about two dozen fully assembled cars, trucks and crossovers are imported from the close neighbors, including high-volume products like the Canadian-made Toyota RAV4, Honda CR-V and Chrysler Pacifica minivan, as well as Mexican-made models such as the Chevrolet Silverado and Volkswagen Taos. But the vast majority of American-made products make use of at least some Mexican and Canadian-made content.
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Consumers will pay the price
Consumers will be the ones to fully feel the impact of new tariffs.
On a number of occasions, Donald Trump has asserted that tariffs will be paid by the countries being targeted. That is a lie. Tariffs are enacted, much like a tax, when goods are brought into the U.S. Whomever buys those goods must pay the tariffs, essentially as new taxes. Though both exporters and their U.S. customers could choose to absorb some of the added costs. Currently, Volvo is limiting how much it adds to the sticker price of the Chinese-made EX30 battery-electric vehicle.
In most cases, however, consumers are the ones eventually stuck with the bill. The U.S. International Trade Commission reported that tariffs against China enacted during Trump’s first term drove up retail prices anywhere from 1.7% to 7.1% on items as diverse as clothing, car parts and computers.
The new tariffs are likely to add thousands of dollars to the cost of the typical Mexican or Canadian-made vehicle, said Sam Abuelsamid, principal auto analyst with Telemetry Research. Tariffs are based on wholesale, rather than a product’s retail value. Even so, in the case of a well-equipped Chevrolet Silverado, for example, a 25% tariff could mean an extra $15,000 or more out of a customer’s wallet.
Meanwhile, even vehicles assembled in the U.S. have become highly dependent upon Canadian and Mexican goods. These can include raw materials like lithium for batteries, wiring harnesses, suspensions and suspension components, and large vehicle interior assemblies.
Some products could disappear
Some entry models – the VW Taos shown here – could be priced off the market by new tariffs.
Over the past decades, the auto industry has built an interlocking web of operations under NAFTA and the subsequent USMCA trade agreements. This network crisscrosses the borders and it’s not uncommon for some goods, such as fastener hardware, computer chips, even larger components, to go back and forth between the three countries. Figuring out how to charge duties could be an enormous task, automotive trade groups have warned.
Trump has claimed that tariffs will help drive manufacturers to shift operations back to the U.S. Prior tariff efforts have achieved that goal, and Honda on Monday indicated it will move Civic production from Mexico to Indiana. But such shifts have been rare compared to what was promised by Trump and prior presidents. And moving vehicle and component operations from one country to another can take years to accomplish, noted Stephanie Brinley, principal auto analyst with S&P Global Mobility.
At the same time, some products may simply disappear from U.S. stores and showrooms. That’s of particular concern at the low end of the automotive market with products like the VW Taos which starts at $26,995. A 25% tariff, even on its wholesale price would add more than $5,000 to the sticker, something that could kill its appeal to buyers on a tight budget – typical in that market segment. In such instances, tariffs could make it impossible for an automaker like VW to retain such products in their line-ups.
A good example is the so-called “Chicken Tax,” enacted against imported light trucks, notably pickups, back in the 1970s and still in place today. It forced most foreign makers to halt selling compact and smaller pickups in the U.S., one reason those segments shrank substantially over the last half century.
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