How Trump’s Proposed Tariffs Could Reshape Automotive Supply Chains
As President-elect Donald Trump prepares to take office with plans to implement tariffs against Canada and Mexico, automotive suppliers are bracing for significant changes to their supply chains. Experts warn that businesses need to be ready for multiple scenarios that could impact costs, operations, and overall sustainability.
“Nothing would have more impact than tariffs on Canada and Mexico,” said Elaine Buckberg, a senior fellow at Harvard University’s Salata Institute for Climate and Sustainability and former chief economist at General Motors and a former senior U.S Treasury official. She emphasized how critical these nations are to the automotive supply chain. Parts and materials often cross borders multiple times during production, and tariffs could disrupt this delicate balance. For instance, Mexico accounted for 16.1% of vehicles sold in the U.S. in 2024, while Canada contributed 7.3%. Additionally, a staggering 42% of U.S. auto parts imports came from Mexico between January and September 2024, with Canada providing another 10%, according to the U.S. International Trade Administration.
Trump’s tariff proposals could include a 25% tariff on all imports from Canada and Mexico. Additionally, his administration has hinted at renegotiating parts of the U.S.-Mexico-Canada Agreement (USMCA) to specifically target automotive provisions. Supply chains in Canada and Mexico could become significantly more expensive and less appealing for U.S. automakers, said Katie Hilferty and Casey Weaver, trade attorneys at Morgan Lewis.
Further complicating the landscape, Trump’s team is reportedly considering targeted tariffs on electric vehicle (EV) battery supply chains, a move that could reshape the EV market and its suppliers.
Planning for Tariff Changes
Given the uncertainty, suppliers must prepare for a wide range of potential scenarios. Experts suggest analyzing supply chains and creating contingency plans tailored to individual business structures. However, stockpiling materials before tariffs are implemented may not be a feasible solution in many cases, said Dan Hearsch, Americas leader of automotive and industrial at AlixPartners.
Manufacturers and suppliers, however, may find some relief in their contracts. Many agreements include clauses allowing suppliers to pass additional costs, such as tariffs, onto original equipment manufacturers (OEMs). Suppliers affected will likely be able to push those costs to the OEM, Hearsch explained. And OEMs will have incentives to help suppliers mitigate these costs by relocating production or lobbying for exemptions.
Still, suppliers can take proactive steps to protect their operations. Confirming the correct country of origin and product classifications under the Harmonized Tariff Schedule of the United States (HTSUS) is crucial to determine tariff applicability, experts say. Tariff engineering—reclassifying goods or altering materials to reduce classification fees—is another possible strategy.
Shifting production to countries with a free trade agreement or favorable trade relations with the U.S. is another option, Hilferty and Weaver noted. However, relocating production facilities is time-intensive and costly. According to Buckberg, it could take at least 18 months for a new U.S. plant to begin operations.
While immediate mitigation may be challenging, suppliers could minimize the long-term impact by adjusting production strategies for new models and parts. Additionally, the use of foreign trade zones (FTZs) could help suppliers avoid duties on goods that are imported, manufactured, and ultimately exported.
Engaging with Policymakers
Experts also recommend that suppliers engage policymakers to influence outcomes before tariffs go into effect. This is the time to build relationships with policymakers and ensure they understand the impacts your business has on the U.S. economy, said Everett Eissenstat, a trade attorney and former SVP of global public policy at GM.
Despite the backlash against tariffs, they have proven to be more resilient than many expected. For example, the Biden administration did not roll back Trump’s 2018 tariffs, suggesting that future tariffs under the incoming administration may remain in effect longer than anticipated. “Don’t expect this to be a short-term disruption,” Hearsch cautioned.
Looking Ahead
The automotive industry faces an uncertain future as new tariffs could significantly alter how supply chains operate. By planning for multiple scenarios, engaging policymakers, and leveraging tools such as tariff engineering or production adjustments, suppliers can navigate these turbulent waters. However, for many in the industry, the next few years will likely be defined by rising costs and a push for innovation in response to evolving trade policies.
