Before a car is assembled, its parts may take multiple trips between the U.S., Mexico and Canada

Ford CEO Jim Farley warned at a recent investor conference in New York that levying steep tariffs on imported goods “would blow a hole in the U.S. industry that we’ve never seen.”

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For years, the U.S. auto supply chains have been deeply integrated with its two neighboring countries. Before a car is assembled, its parts may take multiple trips between the United States, Mexico and Canada.

U.S. tariffs on Mexico and Canada are driving fears of disrupted supply chains across North America and higher car prices. “What we’re seeing is a lot of cost, a lot of chaos,” said Farley.

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In the workshop of Alian Plastics in Monterrey, northern Mexico, molten plastic from the United States is injected into the mold cavity to make plastic car parts such as headlight shells.

Felipe Villarreal, the company’s general manager, told Xinhua that after the production of these plastic parts is completed, they will be shipped to the United States for component assembly and then returned to Mexico for the assembly of the whole vehicle. Finally, the vehicle will be exported to the United States.

“This process is the epitome of close collaboration across the North American automotive industry chain. Instead of paying for materials and processing costs, companies could now be subject to tariffs of 15 to 25 percent at every step, with cumulative rates of up to 70 percent,” Villarreal said.

Despite Washington’s claim that added tariffs protect U.S.-made cars, a purely U.S.-made car simply doesn’t exist. Today, automakers draw on global resources to make cars. Even Ford’s F-150 pickup truck, which has remained the best-selling truck in the United States for over 40 years, gets less than half of its parts from American factories.

Ford has a Chihuahua engine plant and two stamping and assembly plants in Cautitlan and Hermosillo, Mexico, and an assembly plant in Oakville, Canada. Last year, around 8 million cars were imported to the United States. Mexico led the pack as the top U.S. car import partner, shipping some 3 million vehicles. Canada ranked fourth, exporting some 1.1 million units to the United States.

Michigan-based Anderson Economic Group estimates that tariffs would add 2,500 to 5,000 U.S. dollars to the cheapest cars in the United States, while prices of some imported cars might go up by 20,000 dollars.

Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, said that auto prices will go up by US$4,000 per vehicle, while many firms are expected to report low profits or losses.

The higher costs would take a toll. A decade ago, the lowest-earning 20 percent of American consumers couldn’t afford a new car. Today, it’s the bottom 40 percent, said Venkatesh Prasad, senior vice president of research at the Center for Automotive Research.

JOB CUTS “WOULD BE INEVITABLE”

U.S. auto production has been steadily declining over the past decade. U.S. Commerce Department data shows that last year, the U.S. produced only 1.7 million finished vehicles, down from over 4 million in 2014. Because the drop stems from a variety of factors, including rising costs, tougher global competition and a slow transition to electric cars, tariffs to revive domestic manufacturing are likely to backfire.

Even if global automakers shift more production to the United States under the threat of tariffs — as Washington desires — plenty of steel and aluminum would be needed. But the United States began imposing 25 percent tariffs on imports of steel and aluminum on March 12.

Gimme Credit’s analyst Jay Cushing warns that added tariffs on steel and aluminum could increase U.S. vehicle costs by up to 1,500 dollars. The Anderson Economic Group estimates that the tariffs slapped on aluminum and steel could increase electric vehicle prices by up to 2,500 dollars. If car prices rise further, production and job cuts in the U.S. auto industry “would be inevitable,” the group said.

Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, warns North America’s deeply integrated auto industry could collapse. “We all know that you can’t make a car without all of the parts arriving in time, and so if you create a tariff that is at 25 percent … somebody, either the carmaker, the parts supplier or ultimately the consumer, will have to pay,” he said.

Canadian auto suppliers operate 156 factories across 18 U.S. states, employing 50,000 American workers, he said. “We’re American investors and American employers; don’t cut off your nose to spite your face.”

AUTOMAKERS STRUGGLE TO KEEP UP

As concerns over U.S. tariff policy uncertainty grow in the auto industry, both small manufacturers and global giants are crafting their “Plan B” to navigate potential disruptions and safeguard their operations.

“We are meeting to define strategies, just as we did during the COVID-19 pandemic. We discussed everything from technical stoppages to employee management in case tariff threats materialize,” said Manuel Montoya, general director of the Automotive Cluster of Nuevo Leon.

General Motors CFO Paul Jacobson recently said the company is ready to adjust for short-term tariffs but will face greater challenges if tariffs remain in place longer term. “If they become permanent, then there’s a whole bunch of different things that you have to think about, in terms of where do you allocate plants, do you move plants, etc.,” he said.

Typically, automakers start designing and testing next-year models early each year. However, many North American companies remain hesitant this year, with the development of 2026 models still on hold.

Tariff uncertainties are likely to delay vehicle investment, development and production decisions, according to S&P Global Mobility. The U.S. automotive market could become further fractured from other global markets.

In a global context, U.S. protectionism stands in stark contrast to the growing trend of regional cooperation, Montoya said. “We are seeing regions like Europe and Asia strengthen their value chains because it is the most efficient. Isolating oneself is a setback.”

teleSUR/ JF

Source: Xinhua

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