Trump Delays Auto Tariffs, Offering Automakers a Brief Reprieve
U.S. President Donald Trump’s 25% tariffs on goods from Canada and Mexico have thrown the American auto industry into a state of uncertainty. The tariffs, which took effect recently, have raised the specter of increased costs and potential price hikes for consumers, particularly concerning popular vehicles such as full-size pickup trucks.
However, the White House swiftly offered some relief, stating that many vehicles built in North America would be exempt if they already met the requirements outlined in the 2020 U.S.-Mexico-Canada Agreement (USMCA), which was enacted during Trump’s first term. “We are going to give a one-month exemption on any autos coming through USMCA… so they are not at a disadvantage,” White House press secretary Karoline Leavitt told reporters.
Reciprocal tariffs will still go into effect on April 2.
Trump proposed the 30-day pause on USMCA-compliant vehicles during a call with top executives from General Motors (GM), Ford, Stellantis, and other major auto manufacturers, sources told Reuters. While automakers have expressed support for further investment in the U.S., they are seeking clarity on tariff policies and vehicle emissions regulations before enacting substantial changes, according to two sources familiar with the matter. Ford, GM, and Stellantis have all declined to comment on the meeting.
Pickup Trucks: A Key Focus
The situation is especially critical for pickup truck manufacturers and their customer base, which tends to lean towards Trump’s rural base of Republican voters. Research from Global Data indicates that nearly a third of the pickup trucks sold in the U.S. are manufactured in Mexico and Canada. These vehicles are a cornerstone of the U.S auto sector, generating significant sales and profits for GM, Ford, and Stellantis, which owns the Jeep and Ram truck brands.
Nearly 3 million pickup trucks were sold in the U.S. last year, representing around 20% of overall national sales. An August survey from Edmunds, an industry information provider, found pickup truck drivers are roughly twice as likely to identify as Republicans when compared to Democrats.
The temporary tariff pause gives the industry some breathing room to prevent immediate price increases for consumers, considering existing inventory on dealer lots. Ohio dealer Rhett Ricart expressed optimism for a quick resolution to the issue. “I think it won’t take a month for them to figure out how to handle this thing,” he said before the announcement. “I’ll be more concerned … 30 days from now.”
Automakers Face Tough Choices
The threat of tariffs has forced automakers and their suppliers to examine potential strategies for minimizing or absorbing the increased costs. Analysts at Wolfe Research projected the potential tariffs could add about $3,000 to the price of a vehicle on average and about $7,000 to models imported from Canada or Mexico. Full-size pickups already average around $65,000, according to data from Cox Automotive.
“Once the manufacturer starts passing on that cost to us, we’re going to have no choice but to pass it on” to consumers, said Jeff Tamaroff, Chairman Of Tamaroff Auto Group, which owns Honda and Nissan dealerships in Michigan. These added costs would further compound already-soaring vehicle prices, which started climbing during the COVID-19 pandemic and have remained elevated since then. Data from Cox Automotive reveals that the average new vehicle sales price was $48,641 in January.
Among Detroit brands, GM’s Chevrolet and GMC pickups, as well as Stellantis’ Ram trucks, have more exposure to the tariffs, as these vehicles are largely manufactured in Mexico. Ford assembles its F-series pickup trucks in the United States, however it produces truck engines in Canada, indicating the intricate economic interdependence among the three North American trading partners.
Complex Supply Chains at Risk
Industry research indicates that almost no American-made vehicle is comprised entirely of American-made parts. Barclays bank analysts estimate that Mexico supplies up to 40% of the parts used in U.S. vehicles, with Canada contributing over 20%. Suppliers have indicated that they would need to absorb some tariff costs, which might lead to a significant loss if consumer demand declines because of increased vehicle costs. Automakers and suppliers are also worried about the effect of tariffs on components that cross borders multiple times before arriving at their final location.
Consider the example of truck transmissions manufactured by German supplier ZF Friedrichshafen. The transmissions, which are utilized in the Ram and various other vehicles, comprise parts that cross borders several times before their final destination. The process begins at a factory in Mexico which produces torque converters. These torque converters get shipped to South Carolina for transmission assembly. They are again shipped back to Mexico for installation into Ram pickups which again cross the border when reaching a United States dealer.
“A tariff over Mexico, in this particular case, or over Canada, is going to mean hundreds of millions of dollars as an impact” on the industry overall, said ZF North America President Ramiro Gutierrez. Without major production shifts, the ripple effect across thousands of individual auto parts could potentially reach $40 billion by the end of 2025, according to Bernstein analysts.
Pat D’Eramo, CEO of Martinrea, a Canadian company dealing in the production of brake lines and other products, said, “However bad it looks, it’s worse.” The company has facilities in all three countries with some items getting crossed multiple times. The American auto industry, benefiting from unobstructed trade across the U.S., Canada, and Mexico for decades, now contemplates how to redefine supply chains if the trade war continues, representing a possibly expensive prospect.
Since the Trump administration enacted USMCA in 2020, U.S. automakers and suppliers have invested billions to grow their U.S. presence and evade tariffs. Some industry executives now believe they’re being penalized for adhering to Trump’s key trade initiative. “This is a bonanza for our import competitors,” Ford CEO Jim Farley told analysts last month. (Reporting by Nora Eckert and Kalea Hall in Detroit, David Shepardson in Washington, Eric Cox in Detroit; Editing by David Gaffen, Brian Thevenot and Suzanne Goldenberg)
