The Potential Impact of Tariffs

Now that we're all but certain to have Trump's tariffs go into effect tomorrow, people might be wondering how bad it's going to get. For the automotive industry, that's a difficult question. But to say "pretty bad" is likely an understatement.

It is generally assumed that an automotive part crosses a border between Canada and Mexico 7 times before it is in a vehicle on a dealership lot. Each time that part crosses the border, it is taxed. With the increased tax rate, that means sending that part across the border is going to become even more expensive each time it crosses.

We reached out to Sam Abuelsamid, VP of Market Research at Telemetry Insights, to get a better understanding of just how bad it might get, how long it might last, what the repercussions might be, and how long it would take to recover.

"Some of the earliest impacts will hit companies like Toyota and Honda," Abuelsamid tells us in a statement. "All North American RAV4s, except the PHEV, are built in Cambridge, Ontario and it's the 3rd best-selling nameplate in the country." According to Abuelsamid, 93% of all U.S. RAV4s come from Cambridge. Toyota shares, at the time of this writing, are down approximately 4%. Honda shares are down a whopping 6%.

Speaking of Honda, many CR-Vs and Civics are built in Ontario.

Abuelsamid doesn't believe automakers want to immediately start jacking up prices, so how quickly the prices increase depends on how much inventory is currently in stock. For example, Abuelsamid anticipates that the Jeep Compass that's built in Mexico will take longer to see a price increase because it's a slower seller and there's more of them.

While he doesn't know how long tariffs will last -- who does? -- he does predict that if they do last until the end of the year we can expect to see a 2 million unit hit on overall sales. EVs will likely be hit the worst, with the anticipated loss of the tax credit and that a number of those vehicles, like the Mustang Mach-E, are built in Mexico.

If tariffs continue, Abuelsamid anticipates "at least several hundred thousand job loss." Presently, over 4.4 million Americans are employed in the auto industry. Tens of millions more work in businesses tangentially related to the industry.

To get a scope of how often a part crosses a border, Abuelsamid told us a story he heard from his neighbor. This neighbor works for a Japanese OEM. The material for a wiring harness comes from Japan and then is assembled in Mexico. From there it heads to the airbag plant in Texas to be added to the airbag module. From there, it heads back into Mexico to be assembled into a seat. The seat then comes back into Texas to be put into a vehicle. Then, in some cases, that vehicle is sent back to Mexico for sale.

It sounds like this story is about the Toyota Tacoma, but we're purely speculating here. The long story short, though, is the free flow of trade between the United States, Canada, and Mexico is how the automotive industry functions in 2025. Throwing a wrench in the works isn't going to help matters.