Mexico bets Trump will reconsider auto tariffs
New Toyota cars are on a transport truck on a highway near Puebla, Mexico Friday December 9, 2022. Image credit: ZUMA Press, Inc.
President-elect Donald Trump’s plan to impose tariffs on imports from Mexico and Canada could send shockwaves through the US economy, particularly in industries deeply tied to international supply chains, like the automotive sector. Because of this, analysts and industry insiders expect Trump to reconsider the proposal once he takes office in January.
Take the Chevrolet Silverado pick-up truck. This vehicle depends heavily on an international supply chain. Its engines, for instance, are built in Ramos Arizpe and Toluca, two Mexican cities central to General Motors’ operations. Brake systems come from companies like Bosch and ZF/TRW, which manufacture components in several other Mexican cities, including Aguascalientes, Ciudad Juárez, Reynosa, and Querétaro. Canadian materials also play a vital role in the Silverado’s production, providing steel and aluminum for its body and frame, as well as powertrains from Ontario.
This seamless collaboration between the three countries underpins the North American auto industry. A 25% tariff on imports from Mexico or Canada would increase manufacturing costs substantially, pushing up vehicle prices for American buyers. Instead of boosting the domestic economy, the tariffs could backfire, slowing demand and straining businesses.
Retaliatory tariffs by Mexico and Canada—allowed under the USMCA trade agreement—could exacerbate these issues. Many auto parts cross borders multiple times during the manufacturing process, meaning each crossing would face additional taxes. This compounding effect would disrupt supply chains, drive up costs, and delay production schedules, creating chaos for manufacturers across the continent.
This interconnected system highlights how interdependent North America’s automotive industry has become. Mexican officials and business leaders believe that Trump’s proposals, if implemented, would cause widespread harm—not just in Mexico and Canada but also in the United States. Higher production costs could render North American-made vehicles uncompetitive globally, resulting in layoffs, reduced exports, and rising consumer prices.
Trade analysts argue that the administration might reconsider its position once it fully grasps the complexities of the auto supply chain.
“Perhaps they haven’t fully analyzed what Mexico represents in the supply chain—not just for the automotive industry but for many others,” said Beatriz Leycegui, a partner at consulting firm SAI Derecho & Economía. “When Trump takes a closer look at how production chains are integrated, he’ll realize that imposing broad tariffs on trade is not as simple as it seems.”
Currently, 87% of auto parts made in Mexico are exported to US factories, while half of Mexico’s auto parts imports come from the US, according to the International Trade Administration. Decades of trade integration between the US, Mexico, and Canada have created a deeply interconnected supply chain that Trump’s proposed tariffs could dismantle.
If the tariffs proceed, Mexico is expected to retaliate with taxes on US goods, including grain and manufactured products, harming key industries and potentially alienating Trump’s support base. Mexico, the US’s largest trading partner, is projected to import $326 billion in US goods this year while exporting $489 billion. Experts estimate the tariffs and retaliatory measures could cost $203 billion, burdening businesses and consumers on both sides.
“Imposing the tariffs Trump is threatening against Mexico and Canada means punishing American consumers, reducing US competitiveness, and driving up inflation,” wrote Kenneth Smith Ramos, a former Mexican trade negotiator, on X. “Trump’s bet is risky for the US economy, which heavily depends on Canadian and Mexican markets.”
Trump’s proposed tariffs threaten to unravel decades of trade cooperation, increase costs, and harm the economies of all three North American nations, endangering the benefits of regional integration.