Stay up to date with our Up First newsletter, sent every weekday morning. The U.S. and Canadian auto industries have been tightly woven together for decades. But the latest tariff flareup between the two countries may complicate that.
Think of that sticker on the windows of new cars breaking down how much of the vehicle's content comes from the U.S. and Canada. From a manufacturing point of view, content from both places has long been considered deeply intertwined. But the U.S. and Canada failed to reach a new trade deal this summer, and the trade war between them has escalated quickly.
In August, the U.S. enacted new tariffs on aluminum and steel, and President Trump has also threatened 50% tariffs on Canadian vehicles, auto parts and steel effective on Jan. 1. On Tuesday, Canada enacted retaliatory tariffs on a variety of U.S. goods — including on American steel and aluminum. All of this puts the auto manufacturing industry in a jam.
For major U.S. carmakers, analysts say, the tariffs introduce uncertainty as companies determine whether to adjust their supply chains in the long run, or to absorb new costs in the short term. But for the smaller businesses that supply those big companies with thousands of parts — think bolts, or the steel rods for steering wheels — the tariffs could spell bigger, more expensive trouble. " It's really, really damaging to the industry and to the financials of the industry.
It makes planning for things very difficult," says Dan Hearsch, global co-leader of automotive and industrial at the consulting firm AlixPartners. For these companies, he says, the new tariffs follow years of chaos — the aftermath of Covid supply chain shortages, the start-and-stop ramp up to making more electric vehicles, the need to grapple with pre-existing tariffs. "It's one more thing, on top of the one more thing, that was on top of the one more thing, that was on top of the one more thing," Hearsch says.
The U.S. and Canada started weaving their auto supply chains together in 1965, when they signed a pact with a goal of consolidating their auto industries and expanding their combined market. The pact removed duties on auto products or equipment crossing the border when they are made of at least 50% of U.S. or Canadian content. Their trade relationship deepened with the 1994 North American Free Trade Agreement, which included Mexico and removed many duties between the three countries, as long as they contained a certain proportion of North American parts.
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