Trump revives tariff threats, targeting Mexico and Canada

As Donald Trump prepares for his second term as US president, his campaign rhetoric quickly transforms into aggressive trade policies. The president-elect has reignited fears of wide-ranging trade wars, confirming his plans to impose substantial tariffs on imports from Mexico and Canada. Cars and automotive parts assembled in this region could face excess duties of 25%.

Trump declared on his social media platform, Truth Social, that he would sign an executive order imposing this tariff on all imports from Mexico and Canada. The move, he claimed, was necessary to combat illegal immigration and drug trafficking, particularly fentanyl. The tariffs, he added, would remain in place “until this invasion of our country stops.”

Widespread repercussions

The tariff proposal sent shockwaves through North America’s tightly integrated automotive industry. Mexico, in particular, is home to numerous factories producing vehicles for export to the US under the North American Free Trade Agreement (NAFTA), now replaced by the USMCA.

Automakers, including General Motors, Ford, Stellantis, and several European and Asian brands, assemble vehicles and components in Mexico, benefiting from lower production costs and favorable trade conditions.

Elon Musk, promoted as a consultant to Trump’s administration, also planned a Gigafactory in Mexico but decided to pause due to political uncertainty. Until today, the company hasn’t unveiled its trajectory in the region, leaving the projected site in Monterrey in a preparatory state.

Furthermore, the shift in trade agreements within USMCA would mean a miscalculation for Audi. The German luxury maker moved production of the Q8 from Brussels to its Mexican plant, directly impacting the future of the Belgian factory, which will cease operations in February 2025.

The all-electric Q8 e-Tron, for which the US market is of capital importance, would face an unbridgeable cost handicap against rivals like the BMW X5 and X6, which are produced in Spartanville, South Carolina (though the latter are PHEVs).

Jobs under threat

If implemented, the proposed tariffs could severely disrupt the operations above. Analysts estimate that US automakers produced 1.6 million vehicles in Mexico in 2023, while European and Japanese manufacturers assembled an additional 2.2 million units.

These vehicles and parts flow seamlessly across borders, creating a highly interdependent supply chain. Tariffs would not only raise production costs but also threaten jobs and potentially drive inflation on both sides of the border.

Mexico’s President Claudia Sheinbaum swiftly responded, cautioning that such tariffs could backfire. “Imposing tariffs will trigger retaliatory measures, risking our shared industries,” she warned in a letter to Trump, highlighting the potential for significant economic damage.

She specifically referenced General Motors, Stellantis, and Ford, long-standing players in Mexico’s automotive sector. Sheinbaum further argued that these policies would fail to curb illegal immigration or drug trafficking while threatening economic stability across North America.

Canada echoed similar concerns. Prime Minister Justin Trudeau, whose relationship with Trump has historically been tense, urged dialogue and warned of the risks to economic cooperation.

In Ontario, Premier Doug Ford decried the tariffs as a “betrayal,” given the deep economic ties between the two nations. Whether the president-elect’s threats are a bargaining tactic or a genuine strategy, their impact on global trade is already felt. Shares of major automakers dropped significantly on the stock market after his post.