U.S. President Donald Trump talked about the U.S.-Canada-Mexico-Canada Agreement, known as the USMCA, during a January 30, 2020 visit at Dana Incorporated, a car supplier manufacturer in Warren, Michigan.
Saul Loeb | AFP | Getty Images
Detroit – President Donald TrumpThe proposed tariffs on Mexican and Canadian goods are harder to hit auto suppliers than automakers, but their problems may soon have a ripple effect on the wider industry.
Most vehicles produced in North America meet the requirements of the tree trade United States-Mexico Agreement, However, according to the 2020 North American trade agreement negotiated by Trump, according to the strict standards of the 2020 North American trade agreement.
USMCA compliance is important to automakers and suppliers. Standard-compliant products (most notably rules about where parts or materials can be produced) are currently able to avoid 25% North American tariffs until April 2nd when the expanded tax will take effect.
The company lobbied the Trump administration to continue to allow parts and vehicles that comply with USMCA regulations to avoid taxation.
Such tariffs are an increasing challenge for a less powerful post-auto supply chain that continues to face challenges of high interest rates, labor shortages and low profits. There are much more suppliers than automakers, many of which may only produce some parts that can cause production disruptions if forced to shut down due to higher costs.
Many shares of large publicly traded suppliers, e.g. American axle and manufacturing,,,,, Magna International and SuitableIn the case of tariffs, the double-digit number has been lowered this year. Others, e.g. aptiv and Lear Company Roughly flat.
Supplier Stock
“Obviously there is no profitability in the supply chain to absorb tariffs,” MEMA Original Equipment Supplier The association told CNBC. “Suppliers are at greater risk because the lower percentage of suppliers is not compliant with the USMCA.”
USMCA Standard
In 2024, about 63% of parts imported from Mexico to the United States are complaints from USMCA standards. Compared with 92.1% of motor vehicles.
For Canada, 74.6% of motor vehicle parts and 96.9% of vehicles are imported under USMCA in 2024. These include 170 Canadian parts suppliers operating facilities in 26 states Auto Parts Manufacturers Association in Canada.
Vehicles and parts are qualified based on the price of imported goods from the US International Trade Commission. If non-compliant goods that do not comply with trade plans like USMCA, if sold to the government, they may be sold elsewhere or for other reasons.
To become a USMCA, 75% of the vehicle content must be purchased from the United States, Canada or Mexico, and have other requirements such as 40% of the core parts and 70% of the steel and aluminum must be zoned.
“I think if we get automatic tariffs to shut down the industry, then a lot of the interests of our business will look for a state of emergency in court,” said Flavio Volpe, an advocate for the Canadian automotive industry who leads APMA. “Everyone is nervous.”
Shaw’s organization, which represents more than 800 automotive suppliers in North America, said the supply chain is “resilient” but also “vulnerability” that makes major policy shifts difficult to resolve quickly.
“What I said was very difficult, it was a round-trip whip,” Xiao said. “We can easily bring these things back with the idea that the idea can be done. Although it takes time.”
A production worker inspected parts for any quality problems on October 7, 2020 at Aludyne, a car supplier in Huron, Michigan, USA.
Alydyne | Rachael Waynick | Reuters
Overall, Shaw said it could take years to move and build new plants. It can take six to 12 months to allow a new plant. Building the facility may take another 12 to 18 months before tools and additional production.
Whether the whole car or truck is compliant, for parts affected by the vehicle, but many of the main parts (such as engines and gearboxes) are assembled locally to help adapt to the finished product. The same cannot be said for parts such as wire harnesses, batteries and other smaller components.
BMW, for example, said its vehicles produced in Mexico do not comply with USMCA, mainly because the vehicle’s engines are imported from Europe. Engines and transmissions tend to cross the boundaries increasingly, but instead divide them into parts of one of the main components.
“It’s a complex agreement,” said Kristin Dziczek, an automotive policy advisor for the Federal Reserve Bank of Chicago at the annual auto conference in Detroit last month. “So there are different categories of components and parts and vehicles here, and the different thresholds they have to phase out for owning USMCA procurement to make trade within the U.S. zero tariffs.”
There has been a significant decline in adaptability to automobiles and Mexican parts since Trump’s USMCA came into effect and replaced the 2020 North American Free Trade Agreement, meaning more tariffs may be paid. Duty-free vehicles fell from 99.7% in 2019 to 92.1% in 2024, while vehicle parts fell from 75% in 2019 to 62.5% in 2024.
Canada’s trade-compliant free auto parts have fallen from 83.1% in 2019 to about 75% in 2024. Duty-free vehicles imported from Canada were slightly lower than 98.8% in 2019 than last year.
“Industry Issues”
Auto suppliers have been perseveringly saying they won’t or can’t add 25% to non-compliant USMCA parts, which could be taxed on steel and aluminum and other materials.
Swamy Kotagiri is the CEO of Canada-based Magna, a major global supplier to automakers and also offers some contract manufacturing for automakers. He described the proposed tariffs as “absolute damage to the industry.”
“It’s an industry problem. I’m very convinced that no one can solve it,” Kotagiri, a veteran of the automotive industry, told CNBC in an interview last month. “Given the size of the discussion and discussion, it is absolutely impossible for suppliers to take this situation.”
Earlier this month, a survey of 139 suppliers conducted by Mema found that most parts manufacturers were affected by tariffs on steel and aluminum, with 97% of whom expressed concern about the financial distress caused by tariffs from smaller “Subtier” suppliers.
Such suppliers usually make smaller parts, but can easily cause interference in the supply chain if it affects their production. The importance of such suppliers is prominent during the coronavirus pandemic, as global supply chains are often disrupted due to parts disruptions.
Executives based in French-based auto supplier Forvia said earlier this month that the company and its customers, including automakers, have been planning different contingency plans for tariffs.
“The entire supply chain cannot swallow 25 percent,” Forvia CEO Martin Fischer said at a media event. “If the tariffs last for a long time, cars will make consumers more expensive. The industry cannot transport at losses and 25 percent loss.”
