Published by Global Banking & Finance Review®
Posted on February 4, 2025
4 min readLast updated: January 26, 2026
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Trump's proposed tariffs on vehicles from Mexico and Canada threaten US automakers with significant cost increases and potential price spikes for consumers.
By Kalea Hall, Nora Eckert and Victoria Waldersee
(Reuters) - Donald Trump is keeping some of the world’s biggest automakers guessing whether the U.S. president will follow through on threats to slap their vehicles and supply chains with import taxes that could cause hefty vehicle-price spikes for U.S. consumers.
Trump reiterated on the weekend he would impose 25% tariffs this week on goods from Mexico and Canada - including on vehicles made by General Motors and Volkswagen - but delayed a decision for a month after discussions with each country's leader.
Such tariffs would cause “dramatic and immediate” financial fallout for U.S. automakers and other companies manufacturing vehicles in Mexico and Canada to sell in the U.S., said Sam Fiorani, vice president at research firm AutoForecast Solutions.
The uncertainty over Trump's threat has left the industry largely unable to take substantive action to mitigate potential damage, lest the regulatory landscape change with the president's next social media post.
"Do you want to invest in a U.S. production line for a policy that might be reversed in four years' time - or maybe even tomorrow?" said Andy Palmer, CEO of consultancy Palmer Automotive.
SUPPLIERS ADDING ‘TARIFF FEE’
It is hard to overstate the stakes for automakers serving the U.S. market. In the near term, Trump’s import taxes could cost the industry $110 million in added costs each day and potentially $40 billion for the year without major production shifts, according to Bernstein analysts.
The Detroit Three are among the most exposed. Stellantis makes 39% of its North American vehicles in Mexico or Canada, while GM makes 36% there and Ford Motor makes 18%, according to a November report from Barclays. The vast majority of those vehicles are destined for the United States.
VW produces about three-fourths of its North American fleet in Mexico, Barclays said, including some of its most popular and affordable vehicles such as the Jetta, Tiguan and Taos.
U.S.-built vehicles are loaded with Mexican and Canadian parts that would also be taxed, the bank noted. It estimated that Mexico provides up to 40% of the parts in U.S. vehicles and Canada provides more than 20%.
Some suppliers have already added a “tariff fee” on the invoice to automakers in preparation for the policy shift, said Dan Hearsch, an auto industry analyst with AlixPartners. Germany's ZF, a major supplier with 13 Mexico sites making everything from suspensions to brakes and steering wheels, said it was discussing with automakers how to absorb tariff costs and expected that car buyers would share the pain.
"No company in the supply chain can afford to absorb these cost increases," a ZF spokesperson said.
Trump threatened tariffs to pressure Canada and Mexico to curb illegal migration and fentanyl across U.S. borders, and has said he wants to address the country's trade deficits.
GM TRUCKS IN THE CROSSHAIRS
GM’s pickup production is a study in the economic interdependence of the three countries, which has developed for decades under free trade deals - most recently Trump’s U.S.-Mexico-Canada Agreement that took effect in 2020.
Chevrolet Silverado and GMC Sierra pickups are built at four plants, including two U.S. factories, one in Silao, Mexico and another in Oshawa, Canada. The Mexican and Canadian plants together produced more than half of the nearly 900,000 pickups GM sold last year in the U.S, according to production data from AutoForecast Solutions.
In a Monday memo viewed by Reuters, GM assured employees that plants are maintaining regular production schedules and the company has appropriate inventory levels.
Even when they are assembled in the U.S., GM trucks rely heavily on parts from Canada and Mexico.
Engines built at a GM plant in Tonawanda, New York, contain some imported parts. Some transmissions are made in Canada, along with truck frames. Wire harnesses connecting electric components are made in Mexico.
GM executives have said they can shift some pickup production to the U.S. but the automaker does not have nearly enough capacity to shift all of it there from Canada and Mexico. Rich LeTourneau, shop chairman of a union chapter representing employees at an Indiana GM plant that builds Silverado and Sierra trucks, said his members make about 50 trucks an hour and could potentially increase that rate to 74.
"I'm confident they're going to come to me sooner or later to increase line speed and volume here," he said before the tariffs were paused on Monday.
(Reporting by Kalea Hall and Nora Eckert in Detroit and Victoria Waldersee in Berlin; Editing by Rod Nickel)
The article discusses Trump's proposed tariffs on vehicles from Mexico and Canada and their impact on US automakers.
Tariffs could lead to significant cost increases and production challenges for US automakers.
Car buyers may face price spikes due to increased costs passed down from automakers.
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