How Mexico, Canada Tariffs Could Affect Car Buyers and Automakers

• President-elect Donald Trump has proposed a 25 percent tariff on goods from Canada and Mexico to punish those nations for allowing illegal drugs, such as fentanyl, as well as migrants to cross their shared borders, saying he’ll enact said tariffs on his first day in office in 2025.
• Automakers have significant manufacturing presences in both of the U.S.’s neighboring countries.
• The president-elect also floated an additional 10 percent tariff levied on products from China on top of those planned or already in place.

President-elect Donald Trump has already warned China of incoming tariffs, which has put a damper on some automakers’ plans to import vehicles built there. This week he added Mexico and Canada to the list, saying that goods from both countries will be subject to a 25 percent tariff from day one of his second term.

Trump made the proclamation via social media on Truth Social. In that statement, the incoming president said he intends the tariff as a punishment to both countries as long as migrants and illegal drugs continue crossing their shared borders with the United States.

Throughout the 2024 campaign and since Trump’s victory, there’s been a lot of talk about tariffs and their potential effectiveness as a cudgel for movement on trade and social issues. Tariffs have the potential to raise prices of goods, at least in the short term, that would be passed on to consumers, seemingly running counter to Trump’s pledge to reduce inflation.

Truck crossing into U.S. from Tijuana, Mexico, on November 26, 2024.

Potential Losers Are Many

American and European automakers rely on Mexico and Canada for vehicle production. Volkswagen has one of its largest factories in Puebla, Mexico, where it produces the Jetta, Taos, and Tiguan for U.S. export. Stellantis builds heavy-duty Ram pickups and the Jeep Compass in Mexico and has an engine plant there, while the Chrysler Pacifica is produced in Canada, and the upcoming Dodge Charger will be as well. Ford and GM also have sizable manufacturing footprints in both countries that include production of electric powertrains and EV assembly.

Avoiding tariffs would require huge capital investment, not only to build a new plant or retool an existing one in the U.S., but also to move the machinery and train a new workforce. A tariff on imports would also affect suppliers, who colocate their factories with the auto assembly plants they serve. With less than two months until inauguration day, it would be nearly impossible for automakers and others importing goods from these countries to react. And even if they had the time, companies would still have to pass those additional costs on to consumers or risk being uncompetitive in a very price-driven market.

If tariffs do go into effect, car buyers could see reduced choice in the marketplace, higher prices, or both. It’s possible that vehicles built elsewhere, even in the U.S., could see increased prices as a result of automakers having to spread the burden of tariffs.

We’ve already seen the results of looming Chinese tariffs. Volvo announced that it would bring forward plans to import the China-made EX30 crossover in an apparent effort to import those vehicles before any tariffs are enacted while the company works to bring production online at a European plant. The change in timing was announced on November 6, the day after the U.S. presidential election.

Tariffs as Bargaining Chip

There remains the distinct possibility that Trump intends these announcements simply as threats that would give his administration the upper hand in trade negotiations with U.S. neighbors. The intent may be for Canada and Mexico to capitulate on border issues to avoid the tariffs altogether.

It’s also important to note that this isn’t the first time Trump has floated a tariff on goods from Mexico. In his first term, Trump threatened a 5 percent tariff on Mexican imports but later backed off. At that time, the stated intent was to encourage companies to bring production back to the U.S. from its southern neighbor.

Ever since David was a wee Car and Driver intern, he has kept a spreadsheet listing all the vehicles he’s driven and tested. David really likes spreadsheets. He can parallel-park a school bus and once drove a Lincoln Town Car 63 mph in reverse. After taking a break from journalism to work on autonomous vehicles, he’s back writing for this and other automotive publications. When David’s not searching for the perfect used car, you can find him sampling the latest in gimmicky, limited-edition foodstuffs.