US Car Tariffs May Add US$6,250 to Prices, Hurt Supply Chains

The US government's proposed tariffs on vehicle imports from Canada and Mexico could have significant repercussions for the North American automotive industry, including higher consumer prices, production slowdowns, and supply chain disruptions. While the tariffs have been temporarily suspended for a month to allow for negotiations, automakers and industry analysts are bracing for potential long-term effects.

If enacted, a 25% tariff on vehicles imported from Canada and Mexico could increase the cost of an average US$25,000 vehicle by up to US$6,250, according to an S&P Global Mobility analysis. 

"The proposed tariffs could not only inflate vehicle prices but also disrupt production schedules, with estimates suggesting a potential 30% decrease in production for high-exposure vehicles once tariffs are enacted, even if only for the short-term," said Michael Robinet, vice president of forecasting, S&P Global Mobility.

In 2024, approximately 3.6 million light vehicles were imported into the United States from Canada and Mexico, accounting for 22% of total US vehicle sales. Mexico is the largest supplier of light vehicle imports to the United States, surpassing Japan, South Korea, and Europe. Given the highly integrated nature of North American automotive supply chains, the tariffs would affect not only completed vehicles but also components that cross borders multiple times before final assembly. 

"Parts will cross the border seven to eight times before final assembly, and the tariffs are applied every time a part crosses—so costs would escalate quickly," said Marcus Noland, trade policy expert, Peterson Institute for International Economics.

"There is no question that 25% tariffs on imports from Canada and Mexico, if prolonged, would have a massive impact on our industry, wiping out billions in profits and harming US jobs as well as the entire value chain," said Jim Farley, CEO, Ford Motor Company.

Farley added that Ford has enough inventory to manage a short-term tariff period but warned that extended tariffs could force strategic shifts, including potential reshoring of production. “Over the long term, we would need to make significant strategic changes, including building new plants in the United States to circumvent the taxes,” he said.

Aptiv, a major supplier of vehicle software, hardware, and electrical components, has also highlighted potential supply chain disruptions. “Even before this, there was substantial investment in new technology and automation. But companies realize they cannot fully pass tariff increases on to consumers, so they’re investing to reduce costs," said Duncan Angove, CEO, Blue Yonder.

S&P Global Mobility's analysis outlines several scenarios if tariffs are implemented. A six-to-eight-week disruption could temporarily halt or slow vehicle production in Canada and Mexico, with lost production recoverable within a year. However, a worst-case scenario, dubbed “Tariff Winter,” could result in long-term declines in North American vehicle sales—10% in the United States, 8% in Mexico, and 15% in Canada.

"With both Mexico and Canada able to delay implementation until Mar. 1, activities to adjust trade structures with the European Union, the United Kingdom, Japan, and South Korea may be a new focus and arrive this spring," said Stephanie Brinley, associate director, S&P Global Mobility.

“If we are going to implement a tariff policy, whether it lasts a month or years, it needs to be comprehensive. We cannot cherry-pick regions; otherwise, it becomes a windfall for our import competitors,” said Farley.