DETROIT – President Donald Trump’s proposed tariffs on goods from Mexico and Canada pose a greater threat to automotive suppliers than automakers, but their impact could quickly ripple across the broader industry, potentially causing disruptions and price hikes.
Key Takeaways
- Suppliers face higher risks because many of their parts fail to meet USMCA trade standards, unlike most North American-produced vehicles.
- A 25% tariff on non-compliant parts takes effect April 2, unless the administration extends exemptions.
- Supply chain fragility remains an issue post-pandemic, with suppliers struggling under high interest rates, labor shortages, and declining profits.
- Automotive stocks react: Shares of major auto suppliers, including American Axle, Magna International, and Adient, have dropped significantly this year.
Tariffs & USMCA Compliance: Why Suppliers Are More Vulnerable
Under the United States-Mexico-Canada Agreement (USMCA), most vehicles qualify for tariff-free trade, but far fewer auto parts do. According to trade data:
- 92.1% of vehicles imported from Mexico met USMCA standards in 2024, compared to just 63% of auto parts.
- 96.9% of Canadian vehicles were tariff-free, but only 74.6% of parts met USMCA standards.
- Parts that fail to meet the standards will soon face 25% tariffs, significantly increasing costs.
"There’s simply not enough profitability in the supply chain to absorb these tariffs," said Collin Shaw, president of MEMA Original Equipment Suppliers. He warned that smaller suppliers are at even greater risk, potentially leading to plant shutdowns and production delays.
How Tariffs Could Disrupt the Auto Industry
The auto supply chain is fragile, and any disruption at the supplier level could stall automaker production. Major parts such as engines and transmissions are often assembled locally, helping vehicles meet USMCA standards. However, smaller components—like wire harnesses, batteries, and electronics—are more likely to be imported and subject to tariffs.
For example:
- BMW’s Mexico-built vehicles do not meet USMCA compliance because their engines are imported from Europe.
- Parts that cross borders frequently, such as circuit boards and fasteners, are more likely to trigger tariffs than large components like axles or steel frames.
"If auto tariffs shut down the industry, many businesses will likely challenge them in court," said Flavio Volpe, head of Canada’s Automotive Parts Manufacturers’ Association (APMA).
Industry Response: Suppliers Sound the Alarm
Many auto suppliers say they cannot afford the added costs and are lobbying for exemptions. Swamy Kotagiri, CEO of Magna International, one of the world’s largest suppliers, called the tariffs "absolutely disruptive to the industry."
"This is not an issue one company can solve—it’s an industry-wide problem," Kotagiri said.
A recent MEMA survey of 139 suppliers found that:
- 97% expressed concerns about financial distress due to the tariffs.
- Most reported already being affected by existing steel and aluminum tariffs.
Can the Industry Adapt?
Industry leaders warn that relocating production to meet USMCA requirements is not a quick fix. Moving plants and ramping up local production could take years, with permits alone taking up to 12 months.
"The industry can adapt, but it takes time," Shaw said. "The whipsaw effect of policy changes makes it difficult to plan long-term."
What’s Next?
- The 25% tariffs take effect April 2, unless the Trump administration grants an extension.
- Automakers and suppliers are pushing for exemptions or adjustments to USMCA compliance rules.
- If the tariffs stay in place, expect higher vehicle prices, supply chain disruptions, and potential legal challenges.
With uncertainty looming, industry executives are bracing for impact, while consumers could soon feel the effects at the dealership.
