The North American Automobile Industry Waits for Trump and the Gov. to Act

China, China, China. China is not the only offshore manufacturer of automotive wire harnesses, plastic parts, stampings, etc. There is also Malaysia, Thailand, Philippines, etc. I know because I was tasked with visiting our plants as a supplier of US materials and parts. Yes, China is in the mix and I would fly into Beijing go to Tianjin and then head south to Shantou, and Shenzhen. We would end up in Hong Kong for a weekend.

Why would we manufacture offshore? Mostly overhead.

Tariffs would make automotive vehicles more expensive as parts, wire harness, and other assemblies are made and assembled in Mexico. Then they come to the US automotive plants including foreign manufacturers.

Trump is pretty much a showboat when he discusses what he is going to do. All shock and awe. He has little knowledge on manufacturing or supply chain. Which does make him dangerous as he could make unknowing mistakes.

To Tariff or Not to Tariff — the North American Auto Industry Waits with Bated Breath, Plastics Today

Will Trump’s 25% tariffs bring back increased levels of automotive production to the United States?

Or will they “blow a hole” in the US auto industry, as Ford Motor Co. CEO Jim Farley predicted in a recent article from Reuters, if the paused Mexico and Canada tariffs on auto parts and vehicles are eventually imposed.

Relocation of production back to the United States seems to be a tall order given the level of integration of North American parts suppliers and vehicle assemblers that has been built up over the past 30-odd years since the North American Free Trade Agreement (NAFTA) was implemented. (It was replaced by the United States-Mexico-Canada Agreement during the first Trump term.) In fact, the original NAFTA deal proved to be an accelerant for US automakers to exit the parts-making business in the 1990s, extending their supply chains to Mexico to capitalize on its cheap labor and to Canada, where in many cases it made more sense in terms of proximity to Detroit. Reversing this trend would take years, if not longer. In the interim, the big losers would be US consumers who would pay more for their cars and trucks.

Industrial tourists

Today, cross-border supply chains are so tightly integrated that auto parts have often been called “industrial tourists,” crossing international borders on average eight times before they are a complete component. Labor-intensive wiring harnesses, for example, are often assembled in southern Mexico from components sourced globally, including from auto hubs in Michigan and Ontario, and they cross borders on multiple occasions as they are integrated into modules. These “tourists” would be taxed at every border crossing. And what about the logistics and simplicity of tracking these multiple crossings by US Customs? Will shipments be delayed, thereby impacting timely delivery?

The United States also sources a massive amount of auto parts from China, particularly aligning with increased production of electric and hybrid vehicles, and these parts are now subject to an extra 10% tariff. In addition, a 25% tariff on imports of aluminum coming into effect on March 12 will translate to further cost pressure for automakers. The United States sources 70% of its primary aluminum from its northern neighbor Canada.

Eliminating the non-existing EV mandate

Upon his inauguration on January 20, President Donald Trump wasted no time in reversing the previous president’s “EV mandate,” despite the fact that such a mandate never existed. In 2021, President Biden passed an executive order that aimed to make half of all new vehicles sold in 2030 electric. While the order introduced a target, it was not legally binding.

Trump also got rid of policy awarding federal tax credits for the purchase of new or used EVs and paused disbursement of funds for the rollout of charging infrastructure through the Inflation Reduction Act (IRA). No one knows how this policy sits with Tesla boss and Department of Government Efficiency (DOGE) head Elon Musk, but on the surface it looks like domestic growth prospects for EVs have dimmed.

So, what’s the worst-case scenario? As quoted by Barron’s, Cox Automotive economist Charlie Chesbrough said: “Most folks recognize the threat [of tariffs], but they don’t believe he’s going to drop the bomb.” The auto industry hopes that Canada’s appointment of a fentanyl tzar to slash the 0.2% (43 lb) of imports it currently is responsible for and other appeasement measures by the United States’ northern and southern neighbors will limit disruption and additional costs to consumers. But with such an unpredictable administration in charge, who knows what will eventually pan out.