MW This is why Trump's tariff plan has upended the car industry, and it's not over yet

By Claudia Assis

'No one is breathing easy': Trump may have paused his plan to slap 25% tariffs on products coming from Canada and Mexico, but the U.S. auto sector is still reeling

Consider the crankshaft, a car part that looks a bit like a corkscrew and functions as the heart of a vehicle's engine.

Both Ford Motor Co. $(F)$ and General Motors Co. $(GM)$ use crankshafts forged by a U.S. auto-parts supplier in some of their more upscale SUVs and pickup trucks, the kind of highly profitable vehicles American automakers still manufacture on U.S. soil.

The piece is sometimes sent across the Detroit River to Canada for rough machining, then comes back to the Detroit area for further machining, because it is a specialized part that requires more balancing and polishing, said Frank DuBois, a professor at American University's Kogod School of Business in Washington, D.C. While some crankshafts may stay in the U.S., others will cross the river once more to the Windsor, Ontario, area to their final placement in a vehicle engine manufactured in Canada. The finished engine itself could then move back to the U.S., DuBois said.

The numerous trips that parts, engines and even unfinished vehicles take across the U.S., Canada and Mexico borders are closely guarded, proprietary information that automakers won't divulge. A gas-powered vehicle on average has about 30,000 parts, counting all its nuts and bolts, while electric vehicles have roughly a third fewer parts.

The car parts that fuel the U.S. auto sector are made by hundreds of suppliers, tweaked by more suppliers or added to larger vehicle components such as engines or dashboards that end up in a carmaker's assembly plant. More than one expert who spoke with MarketWatch compared the process to building with Legos. A congressional report estimated an auto part might make seven or eight trips, either by itself or as part of a whole, between the U.S., Canada and Mexico.

At the start of February, President Donald Trump last paused for 30 days his plan to slap 25% tariffs on products coming from Canada and Mexico. But the U.S. auto sector is still reeling at the negotiations that will follow and the prospect that a full-fledged trade war may still break out. On Monday, Trump said the paused Canada-Mexico tariffs are "going forward."

"With respect to possible tariffs, we are working across our supply-chain logistics network and assembly plants so that we are prepared to mitigate near-term impacts," GM Chief Executive Mary Barra said on a recent investor call. "What we won't do is spend large amounts of capital without clarity."

The industry is already in perilous waters as it faces stiff competition from Chinese vehicles and tries to transition to electric vehicles. It now has to contend with uncertainty when its business decisions are measured in years, not weeks or months. Tariffs on Canadian and Mexican products are on hold until March. The tariff plans are on top of a raft of tax- and emissions-policy changes expected during the Trump administration, and the recently announced broad-based tariffs on aluminum and steel, which are set to take effect next month.

"No one is content right now, and no one is breathing easy," said Sam Abuelsamid, a vice president of market research for Telemetry Insights and a mechanical engineer by training.

The U.S. and Canadian auto sectors are particularly intertwined. Automakers and their suppliers collaborate as much as they can to locate their facilities next to each other to minimize shipping costs, as part of the "just-in-time" inventory and manufacturing credo that got its start with Japan's Toyota Motor Co. $(TM)$ in the last century.

Proximity makes it possible. From Stellantis NV's (STLA) Jefferson plant in the Detroit area, which makes Jeep Grand Cherokees and Dodge Durangos, one can see across the river to Canada. U.S. regulators keep a list of American cars that does not differentiate between parts made in Canada or in the U.S.

"This is how you have this very interconnected, dependent ecosystem between automakers and suppliers," Abuelsamid said. "Unless you are working for the automaker it is almost impossible to figure out exactly where each part is coming from."

'North America is just one big car factory'

The National Highway Traffic Safety Administration keeps a list that shows the most American-made cars. The list is part of the 1992 American Automobile Labelling Act, which required all new vehicles for sale in the U.S. to identify the percentage of a car's components that came from the U.S. versus other countries.

When the list was initially launched, auto parts were already crossing the northern border numerous times, and the U.S. automakers argued it was onerous and impractical for them to tease out which parts were made in Canada and which parts were made in the U.S., said DuBois. To this day, the list determines the Americaness of a car by quantifying the "percent content U.S./Canada."

Sitting atop the list as the most American-made car of 2025 is the Kia EV6, the product of South Korea's Hyundai Motor Co. (KR:005380). The electric crossover is manufactured at a 2,200-acre assembly plant in West Point, Ga.

DuBois set out to make his own list of American-made vehicles after a colleague bought a Chevrolet believing the vehicle to be mostly U.S.-made, and shared his thoughts with DuBois.

"What could be more American than a Chevrolet? It turns out it wasn't," he said. "I did my list basically to inform people that what you see is not always what you get."

DuBois' Kogod Made in America Index takes into consideration not only parts' places of origin but also automakers' headquarters and where research and development, as well as design, take place. Tesla Inc. $(TSLA)$ electric vehicles took the top spots on the 2024 Kogod list.

DuBois himself drives a 2023 Chevy Bolt EV he bought used; the car is at the bottom third of the NHTSA list for that year, with its motor and battery made in South Korea and other parts in China and in Turkey. It fared better on the Kogod 2023 list, ranking in the top third.

Still, it's nigh impossible for outsiders to figure out what's a Canadian or an American part. "North America is just one big car factory," said Antoine Vagneur-Jones, head of trade and supply chains for BloombergNEF.

Concern, confusion from carmakers

If tariffs are enacted, it's uncertain whether the parts crisscrossing the continent would have to pay duties each time they do so, or even if duties would be due at all considering the United States-Mexico-Canada Agreement, or USMCA, which became law in 2020 and replaced the North American Free Trade Agreement, or NAFTA, in July of that year.

Carmakers by their nature make their decisions over multiple years, and no one is sure what Trump's intent is, Vagneur-Jones said.

"Uncertainty is the new certainty," he said.

Ford Chief Executive Jim Farley dedicated about a quarter of Ford's recent post-earnings call with analysts speaking about the tariffs issue. "A few weeks of tariffs are manageable" given inventory and Ford's flow, Farley said.

"Protracted" 25% tariffs on Canada and Mexico goods, however, "would have a huge impact on our industry, with billions of dollars of industry profits wiped out," and cause an adverse effect on U.S. jobs as well as "the entire value system in our industry," the CEO said. "Tariffs would also mean higher prices for customers."

Based on conversations in Washington, the Trump administration and congressional leaders are "committed to strengthening, not weakening, our nation's auto industry," and Ford is looking forward "to working with our leaders to make sure that becomes a reality," Farley said.

Trump is likely to be getting a lot of pressure from people in the automotive industry and other sectors that would be most affected by the planned duties, American University's DuBois said.

"And I suspect that there's some very angry people in the management of these companies who are very, very, very concerned and confused about U.S. trade policy," DuBois said. "People in Dearborn (Mich.) don't know what's happening, and there's no way of telling what's the situation one year from now."

Carmakers can't suddenly build a plant in the U.S. and find suppliers to that plant, especially if they don't know the long-term plans for the tariffs. Things could go a little quicker if a maker had existing plant capacity somewhere, but even that is not a given or a decision to be taken lightly, he said.

"Meanwhile, China is going gangbusters in EV and battery technology and we are getting further and further behind," DuBois said. "I'm not betting on the future of the U.S. automotive industry in terms of being competitive and in terms of being able to respond to the needs of the marketplace. I'd bet on the future of Chinese manufacturers spreading around the world."

-Claudia Assis

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February 25, 2025 06:39 ET (11:39 GMT)

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