US President Donald Trump arrives on January 30, 2020, during a visit to Dana Incorporator, a car supplier manufacturer in Warren, Michigan, to talk about the US-Mexico-Canada Agreement, known as the USMCA.
Saul Roeve | AFP | Getty Images
Detroit – President Donald Trump’s proposed tariffs on goods from Mexico and Canada will hit car suppliers more violently than automakers, but their problems could soon have ripple effects on a wide range of industries.
Most vehicles produced in North America meet the requirements for free trade under the US-Mexico-Canada Agreement, but far fewer individual parts meet strict standards under the 2020 North American Trade Agreement negotiated by Trump, according to federal trade report data.
USMCA compliance is important for automakers and suppliers. Products that meet the standard most notably include rules regarding where parts or materials can be produced, but can now avoid a 25% North American tariff until the expanded taxation is set to take effect on April 2nd.
Companies are lobbying the Trump administration to continue allowing parts and vehicles that meet USMCA regulations to remain tariff-free.
Such tariffs add challenges to the less robust post-Covid car supply chain, which continues to face high interest rates, labor shortages and declining profits. There are far more suppliers than automakers. Many can only produce a few parts that can cause production disruption if they are forced to close due to high costs.
Many large stock traded supplier stocks such as American Axle & Manufacturing Holdings, Magna International and AdientThis year, the tariffs have fallen by double digits. Aptiv and others Lear Corp. It’s almost flat.
Supplier Stocks
“The supply chain to absorb tariffs is clearly not profitable,” Collin Shaw, president of the MEMA Original Equipment Suppliers Association, told CNBC. “Suppliers are at greater risk and we are making sure that the lower percentage of suppliers is not USMCA compliant.”
USMCA Standard
Approximately 63% of auto parts imported into the US from Mexico in 2024 complained to the USMCA standards. This is compared to 92.1% of cars.
According to the Canadian Auto Parts Manufacturers Association, 74.6% of Canadian Auto Parts and 74.6% of vehicles are imported under the USMCA, which is imported under the USMCA.
Vehicle and parts compliance comes from publicly available trade data from the US International Trade Commission based on the value of imported goods for consumers. A small number of non-compliant products that did not claim a trade program such as the USMCA may not have imported customs duties if they are being sold for government or other reasons.
To comply with the USMCA, 75% of the vehicle’s contents must be sourced from the US, Canada, or Mexico, with 40% of the core parts and 70% of the steel and aluminum required to be sourced regionally.
“I think if we receive the car rates that shut down the industry, a lot of interest in our business will go to court looking for emergency situations,” said Flavio Volpe, the Canadian automotive industry advocate who leads APMA. “Everyone is nervous.”
Show, representing more than 800 automotive suppliers in North America, said the supply chain is “resilient,” but also said there are “vulnerabilities” that make it difficult to deal with major changes in policy quickly.
“It’s very difficult to say, the whip is the exchange,” Shaw said. “The concept of how you can bring these things back very easily — you can do that, but it takes time.”
Production workers will inspect parts for quality issues at Aludyne, an automotive supplier in Port Huron, Michigan, USA, on October 7, 2020.
Aridin | Rachel Weinnick | Reuters
Generally, Shaw said it can take years to move plants and build new plants. It can take 6-12 months to allow a new factory. Building the facility takes another 12 to 18 months and 18 months.
Whether the entire car or truck is compliant or not, the parts produced for the vehicle are locally assembled with many key components, such as the engine and transmission, to help them comply with the finished product. The same cannot be said about parts such as wire harnesses, batteries and other small components.
For example, BMW said vehicles produced in Mexico are not USMCA compliant, mainly because the engines of the vehicles are imported from Europe. Engines and transmissions tend to cross boundaries more frequently than they enter one of these major components.
“This is a complicated agreement,” said Christine Ziczik, auto policy advisor for the Federal Reserve Bank of Chicago at the annual automobile conference in Detroit last month. “So here we have different categories of components, parts and vehicles, and various thresholds that we had to step-by-step to do USMCA procurement to get zero tariffs for trade within the US.”
More tariffs could be paid, especially as Trump’s USMCA came into effect and replaced the North American free trade agreement in 2020, as it has been compliant with both Mexican cars and parts. Duty-free vehicles have decreased from 99.7% in 2019 to 92.1% in 2024, while vehicle parts have decreased from about 75% in 2019 to 62.5% in 2024.
Auto parts compliant with Canada’s free trade have declined from 83.1% in 2019 to about 75% in 2024. Imports of tariff-free vehicles from Canada have slightly decreased from 98.8% in 2019 to around 97% last year.
“Industry issues”
Automotive suppliers have asserted that they cannot or cannot undertake increased costs with possible tariffs in addition to the 25% increase costs for non-compliant USMCA parts, namely, taxation of steel, aluminum and other materials.
Swamy Kotagiri is CEO of Canada-based Magna, a leading global supplier for automakers, which also contract manufacturing for automakers. He explained that the proposed tariffs were “absolutely disruptive for the industry.”
“This is an industry problem. I really believe it cannot be addressed by any component,” Kotagiri, a veteran in the automotive industry, told CNBC in an interview last month. “Given the size that’s been discussed and spoken, it’s absolutely impossible for a supplier to take on this.”
A survey earlier this month of 139 suppliers conducted by MEMA revealed that a majority of parts manufacturers were affected by steel and aluminum tariffs, with 97% expressing concern about tariff-induced financial distress at smaller “subtier” suppliers.
These suppliers usually produce smaller parts, but if production is affected, they can easily cause disruption in the supply chain. The importance of such suppliers was evident during the coronavirus pandemic.
Earlier this month, an executive at Forvia, a French-based automotive supplier, said the company, including the automaker, and its customers, are planning different tariff contingency plans.
“The entire supply chain cannot be swallowed 25%,” Forvia CEO Martin Fischer said at a media event. “If tariffs last for a long period of time, cars become more expensive for consumers. The industry cannot engulf 25% of the losses.”
