Faced with strong resistance from domestic and foreign automakers alike, Pres. Donald Trump has reportedly folded and won’t put in place 25% tariffs on Mexican and Canadian autos and auto parts which, critics warned, could cripple the auto industry while also giving a hammer blow to the U.S. economy as a whole. More from Headlight.News.
Pres. Donald Trump ordered a 1-month reprieve on Canadian and Mexican tariffs but may again delay sanctions which could have been enacted on April 2.
Pres. Donald Trump will forego the 25% tariffs he’d said would be put in place on April 2, according to several reports from Washington, avoiding what Detroit’s Big Three and other automakers warned could lead to a meltdown of the industry and, in turn, provide a kick to the head of a weakening U.S. economy.
Trump now has twice delayed enacting tariffs on autos and auto parts imported from Mexico and Canada, the country’s two largest trading partners, most recently putting them on hold on March 4 for a 30-day wait. Automotive manufacturers had warned that the tariffs would add thousands to the price of new vehicles, even those assembled in the U.S. because of their dependence on Mexican and Canadian parts. The concern was that this would further exacerbate the sticker shock that has made it difficult for the industry to fully recover from the effects of the COVID pandemic.
Trump now is looking at alternatives, according to reports by the Wall Street Journal, Bloomberg and other sources in Washington. They indicate the White House is rethinking all its options which could include delaying or scaling back automotive tariffs or finding alternative trade actions. But some observers fear the basic act of threatening tariffs has already done damage to trade relations between the three nations that could have long-term impact on businesses including not only the auto industry but everything from liquor to natural resources.
What’s New
Trump could cause “chaos,” some industry insiders fear, by tearing up the current trade agreement with Canada and Mexico where plants like this GM Silao facility are located.
The president has long voiced concerns about the “fairness” of trade with key partners, a list also including the European Union, Japan and South Korea. He has threatened to enact automotive tariffs during his 2017-2021 term in the White House but largely limited that to sanctions targeting China. During the run-up to last November’s election, however, Trump made it clear he would move on trade if he was returned to the White House.
He has already enacted a number of trade measures targeting China, Canada and Mexico – though auto tariffs were twice put on hold. Trump also has signed orders placing 25% duties on imported steel and aluminum, as well as Canadian lumber.
But, if the new reports prove accurate, he has now decided to forego enacting the threatened 25% tariffs he’d signaled would go into place on April 2.
Exactly what happens now is uncertain. According to the WSJ, Trump said auto tariffs will come “very shortly,” during a Monday cabinet meeting but the administration, the paper reported, had already “indicated sectoral tariffs likely wouldn’t be announced on April 2.”
What are the alternatives
Some of the best-selling vehicles in the U.S., such as the Toyota RAV4, are imported from Canada and Mexico.
Trump, it continued, “would still impose reciprocal levies that day seeking to equalize U.S. tariffs with the ones charged by other nations.” In some cases, the U.S. has lower tariffs on autos than trade partners. In others, however, they can be substantially higher, as with the so-called “Chicken Tax,” a 25% tariff on light trucks imported from the EU. That’s the primary reason European automakers don’t play in the normally profitable pickup segment.
Other trade options could be implemented, according to the Journal and other outlets quoting White House sources.
“President Trump has consistently pushed to defend industry sectors that have been undermined by unfair foreign trade practices but are critical for America’s economic and national security,” said White House spokesman Kush Desai. “No final decisions have been made, however, on if any additional sectorial tariffs will be part of President Trump’s April 2 reciprocal tariff announcement.”
As a result, the reports that the proposed 25% tariffs are on hold was greeted with “zero comfort,” according to a statement by Flavio Volpe, head of the Canadian Automotive Parts Manufacturers’ Association.
More Autos and Politics News
- Could Trump Target European Automakers Next?
- One-Month Reprieve Ordered by Trump on Auto Tariffs
- Trump Has the Auto Industry in His Sites
Why it matters
Even vehicles assembled in the U.S., like the new Ford Mustang GTD, would face price hikes since they use some Canadian and Mexican parts.
As a result of the NAFTA and subsequent USMCA trade pacts, the borders between the U.S., Canada and Mexico all but vanished – at least from the auto industry’s perspective. As a result, automakers and their suppliers have built up an interwoven North American manufacturing network treating the borders between the three countries as minor inconveniences.
Whether wiring harnesses from Mexico or suspension components from Canada, parts freely flow from plant to plant, offering crossing borders repeatedly. Virtually every vehicle assembled in North America uses parts and components from the three nations – and would see production costs rise with new tariffs. Most industry experts anticipate manufacturers would pass some, probably all, those costs onto consumers.
A study by the Michigan-based Anderson Economic Group estimates prices would rise at least $4,000 for a typical SUV or CUV. On some products, such as a well-equipped Chevrolet Silverado, the tariff penalty or a loaded version of the Audi Q5 could top $12,000.
Automotive tariffs would come at a time when the U.S. auto industry is still recovering from the devastating blow it took during the COVID pandemic. American motorists purchased 15.9 million new vehicles in 2024, a roughly 2% year-over-year increase – but that fell well short of the industry record, the 17.5 million new vehicles sold in 2016.
Sticker shock is widely blamed for limiting the industry’s recovery so, any further increases could actually result in declining vehicle demand, especially it Trump’s trade war were to weaken the broader economy.
“Fold”, “Hammer blow”, “Cripple”.
Paul, I LOVE your objective, unbiased reporting!
He folded…
Automakers and analysts repeatedly used terms like hammer blow and cripple. Drop 1 million sales annually and you want to tell me the impact on the economy?
LOL!