This article is written by Ernesto Mendoza
A new round of proposed tariffs against Canada and Mexico could upend automotive supply chains in North America, creating fresh challenges for parts manufacturers. Industry experts warn that companies relying on cross-border shipments may see significant cost increases and logistical obstacles if the incoming administration follows through with plans to impose duties on imported components.
What’s at Stake
- Automotive Supply Chains Under Pressure Tariff proposals include a possible 25% duty on imports from Canada and Mexico. While some measures may target electric vehicle (EV) battery components specifically, others could affect a broad range of auto parts.
- Multiple Cross-Border Movements Vehicle manufacturers often source parts from different countries, with components crossing borders several times before final assembly. If tariffs make each movement more expensive, suppliers could face substantially higher costs.
Risks and Realities for Suppliers
- Increased Costs Tariffs would make it more expensive to import key materials and components, especially for suppliers deeply integrated with Canadian and Mexican production.
- Supply Chain Disruption Rapidly relocating production to other countries or expanding U.S. facilities takes time—often more than a year. In the short term, prices may rise because manufacturers can’t simply shift operations overnight.
- Contractual Ramifications Many supplier agreements have clauses allowing extra charges if unexpected taxes or duties arise. This can lead to negotiations about who absorbs added costs, with automakers and suppliers both seeking ways to minimize the financial impact.
Planning for Multiple Scenarios
Experts say that scenario planning is essential:
- Map Your Supply Chain Suppliers should audit their cross-border flows, identifying where products originate and how they’re classified under the Harmonized Tariff Schedule of the United States. Proper classification can help determine accurate duty rates and avoid penalties.
- Tariff Engineering Some companies can reduce duties by modifying product composition or using different classifications if the new categories carry lower tax rates.
- Maximize Exemptions and Exclusions Tools like Foreign Trade Zones can help if goods are eventually re-exported. Suppliers should also stay alert for any new exclusion processes or general exemptions that might ease tariff burdens.
Collaboration with Automakers
Because of the industry’s interconnected nature, vehicle manufacturers have strong incentives to help suppliers navigate new tariffs. Automakers may assist with:
- Lobbying for Delays or Exemptions Major OEMs might push for grace periods, exemptions, or temporary waivers, buying time to adjust supply chains.
- Strategic Relocation Over the long term, automakers and suppliers may combine resources to move or expand production outside the tariff zones—or to other countries with more favorable trade deals.
Engaging in Policy Discussions
Some observers caution that ignoring potential tariffs is risky. Everett Eissenstat, a trade attorney and former senior economic official, advises suppliers to develop relationships with policymakers and clearly communicate how tariffs could hurt local businesses and workers.
Dan Hearsch, an automotive consultant, echoes that tariffs might not vanish quickly, even if they prove unpopular. “Don’t expect it’s going to be a blip,” he says. “You need to prepare for the possibility they could be here for a while.”
The Road Ahead
Although the exact timing and scope of these tariffs remain uncertain, automotive suppliers should consider multiple contingency plans. By understanding their supply chains in detail, exploring every legal avenue to reduce costs, and proactively working with automakers and policymakers, companies can position themselves to adapt—no matter what changes lie ahead.
