The CATO institute does a great job explaining why tariffs on Canada and Mexico would be a very bad idea.
Canada/Mexico Tariffs Would Harm the US Auto Industry
Please consider Canada/Mexico Tariffs Would Harm the US Auto Industry (and American Car Buyers)
President Donald Trump has repeatedly threatened to impose 25 percent tariffs on all goods imported into the United States from Canada and Mexico, with the levies coming as soon as this Saturday, February 1.
Mexico and Canada Are the United States’ Top Trading Partners for Automotive Goods
Mexico and Canada are both the main sources of US imports of motor vehicles and motor vehicle parts and the major purchasers of US exports of these same products. Both countries together account for nearly half of US imports and exports of motor vehicles and parts.
A 25 percent tariff on these products would not just harm US consumers—both individuals buying vehicles and manufacturers using automotive inputs—but could also expose US companies to decreased sales in, and potential retaliation from, Canada and Mexico.
Decades of free trade have caused the US, Canadian, and Mexican automotive industries to be highly integrated, with producers in all three countries shipping finished goods and parts across the United States’ northern and southern borders.
(The American and Canadian automotive supply chains are so interlinked that the National Highway Traffic Safety Administration’s list does not distinguish between American-made and Canadian-made content embedded in these vehicles.)
Many cars sold in the United States are made in Mexico with core parts from the United States and Canada, meaning that much (if not most) of the vehicles’ value comes from work performed by American workers and companies during production.
Simple Capacitor Journey
Multiple Tariffs on a Single Product?
The North American automotive supply chain is so interwoven across all three USMCA countries that an engine, transmission, or other automotive component might cross the US-Canada and US-Mexico borders as much as seven or eight times before it ends up in a finished vehicle
Conclusion
As I wrote late last year, the US automotive industry is a great example of the complexities of 21st-century manufacturing and the benefits of globalization:
[I]t’s widely acknowledged by automotive industry experts that freer trade and investment have generally fueled the growth and stability of North American automotive production since the 1990s.… By permanently reducing trade barriers, trade agreements have been credited with attracting more foreign investment and boosting overall industry competitiveness by lowering production costs (e.g., via imported inputs), utilizing national comparative advantages, and opening overseas markets.
It’s also a stark example of how and why tariffs would harm the modern US economy, including the manufacturing sector and American consumers. Automotive industry experts have warned that the tariffs would quickly “add a minimum of thousands of dollars” to the price of a new car in all three countries.
Will Cooler Heads Prevail?
CATO hopes cooler heads prevail and so do I. There is much more in the report with at least five more charts.
For weeks I could not shake the feeling that Trump will not put 25 percent tariffs on Mexico and Canada.
But Trump has now repeated his threat so often that perhaps he feels compelled to take some action.
Given the cross-border auto complications, perhaps he excludes autos. But any action will likely result in retaliations.
Reflections on Breaking Deals
Any tariffs, no matter how small, would break Trump’s own USMCA “best trade deal in history.”
Trump may cite other rules or declare more nonsensical emergencies on steel or whatever, but none of that will pass the smell test.
If Trump resorts to breaking deals on a whim or for extraneous reasons like drugs, he is doing little more than telling the world he will not honor his deals.
This is not the same as breaking the Paris Climate Accord because that was never signed off by the US Senate. In contrast the USMCA deal was ratified 89-10.
I suspect Trump may find a way to “postpone” these tariffs following pledges by Canada and Mexico to do better on the border.
USMCA is due to be renegotiated in June of 2026. But the key date now is February 1, 2025. That’s when Trump has many times stated he will start 25 percent tariffs on Canada and Mexico.
If Trump really wants to do something, China and Vietnam are much better targets.
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