The U.S. economy has never been more integrated with Canada and Mexico. The 25 percent tariffs that President Trump has said he would impose on America’s two largest trading partners on Tuesday could upend those relationships—and no sector is as exposed as the automotive industry.
The odyssey of a single car part shows the potential for higher costs and snarled supply chains. A module used in automatic transmissions—and components used to make it—can cross a border several times before a consumer drives off a dealer’s lot in the U.S. Depending upon how the Trump administration structures the tariffs, each crossing involving the U.S. border could be subject to a duty. Trump has said he wants to encourage companies to open factories in the U.S. “We’re going to do a lot more automobile manufacturing in our country,” he said last month.
Some $1.6 trillion of goods moved back and forth between the U.S. and its two neighbors last year, according to the Census Bureau, a 30 percent jump from 2018. That is when the U.S.-Mexico-Canada agreement that Trump negotiated in his first term was signed, replacing the North American Free Trade Agreement signed in 1992.
Here’s how Canadian manufacturer Linamar uses factories in all three countries to make transmission modules for vehicles sold in the U.S.
The auto sector is the largest component of trade between the USMCA partners, making up 22 percent of total trade between the three countries, according to Scotiabank Global Economics.
More turmoil could lie ahead. The chief executive of Ford, Jim Farley, said last month that Trump’s tariff plan is creating “a lot of cost and a lot of chaos,” and warned that tariffs on Mexico and Canada would be devastating for his company.
