President Trump’s 25% tariffs on goods from Mexico and Canada took effect first thing Tuesday. The American auto industry will be hit hard by these tariffs since many parts and materials come from Mexico and Canada. WSJ’s Mike Colias and a U.S. a uto parts supplier talk about the impact of the tariffs. Further Listening: -Trump’s Tariff Whiplash -How One Business Is Getting Ahead of Trump’s Tariffs Further Reading: -Auto Executives Try to Sway Trump on Tariffs, EV Subsidies -Tariff Threat Prompts Automakers to Find New Suppliers, Consider Higher Prices -Canada and Mexico Gambled on a Free Trade Future. The Bet Is Turning Sour. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: Who is affected by Trump's new tariffs?
My name is Thomas Koval. I am the CEO of Leggera Technologies. I live in Rochester, Michigan, not far from Detroit, the center of automotive industry.
Thomas's company makes parts for vehicles, things like the shelves inside Amazon vans and those spare tire holders at the back of Jeeps and Ford Broncos. How long have you worked in the automotive industry?
I've actually worked in automotive industry my entire life since I was 16 years old. I started working in factories in Germany and I'm originally from Sweden. I'm a big fan of Detroit and I'm a big fan of the auto industry.
How much of your production is in the U.S. and how much is outside of the U.S. ?
All our production is in the U.S. However, we do have material coming in from other countries. We have material coming from Mexico.
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Chapter 2: How are the tariffs impacting U.S. auto parts suppliers?
As of today, those materials will be subject to a new 25% tariff.
tariffs, 25 percent on Canada and 25 percent on Mexico, and that'll start. So they're going to have to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States.
President Trump has said these tariffs are necessary to fight fentanyl trafficking and illegal migration, as well as to build up U.S. manufacturing.
Chapter 3: What are the reasons behind Trump's tariffs?
It's a very unpredictable time right now, and it's a very, very tough time. We don't know where these tariffs are going to go, so we're going to have to deal with that. But the question is, how long will it last for? So a company like ours, we've built up inventory to try to see if this is only going to last for two weeks, we're going to be fine. But after that, what happens?
If you could use one word to describe the conversations that are going on in the auto industry right now, what would it be?
Instability. Not panic or... There's probably a lot of panic at the moment as well. But now that it's real, I'm sure that there's definitely some panic as well.
Welcome to The Journal, our show about money, business, and power. I'm Kate Linebaugh. It's Tuesday, March 4th. Coming up on the show, the trade war is here, and it's causing chaos for carmakers.
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And what's the one word you would use to describe how the auto industry is feeling today?
A bit chaotic. Sorry, that's three words.
Chaotic.
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Chapter 4: How are automakers responding to the tariff changes?
And I think that has people freaked because there was this idea that this was a negotiating tactic. This is never really going to happen. I mean, tariffs on Canada and Mexico for the auto industry, you know, that's like DEFCON 1, right? This could wipe out profits for companies big and small. So, yeah, people are freaked today.
How will these tariffs impact the U.S. auto industry?
I mean, there is no industry that has more at stake than automotive. Of all of the trade that happens between Canada and Mexico, the car business accounts for nearly a quarter of that. About 23% of cars that are sold in the US are built in either Canada or Mexico.
Half of the car parts that come into the country that are imported here to be put into cars, about half of that comes from either side of the border. That's $100 billion of stuff. And then beyond the car companies, you know, there are thousands of part suppliers.
When we talk about an American-made car, what does that mean in reality?
Well, I think most people think of it as cars that are assembled inside of the U.S. And, you know, most of the cars that get sold in the U.S. are built here. It's a small majority. But a lot of those cars, the guts of the car is imported. A lot of it from Mexico, a lot of it from Canada. So it can be U.S. built, U.S. made. But, you know, a lot of it's relying on foreign parts.
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Chapter 5: What role does NAFTA play in the auto industry?
The auto industry's supply chain was shaped by the North American Free Trade Agreement. NAFTA took effect in 1994 and created a free trade zone between the U.S., Canada and Mexico. Here's President Bill Clinton at the time.
NAFTA will tear down trade barriers between our three nations. It will create the world's largest trade zone and create 200,000 jobs in this country by 1995 alone.
President Trump in his first term began renegotiating NAFTA. And that deal, known as USMCA, was finalized in 2020.
The renegotiation that Trump did in his first term of NAFTA that produced what we call the USMCA now, I mean, it was really, you know, there were some incremental changes that required some costs and some investment and companies had to make more stuff in North America in order to bypass any tariffs. But it was, you know, one executive referred to it as a rebranding, right?
Chapter 6: How does the auto industry's supply chain operate across borders?
I think auto executives went into this feeling like cooler heads were gonna prevail in a way.
Under both deals, there were no tariffs imposed on car parts and materials. And so car manufacturing continued to move regularly across the borders with Mexico and Canada. So now the auto supply chain includes thousands of companies sending parts back and forth across borders multiple times.
Our colleagues at the Wall Street Journal did a very nice analysis just the other day about how it followed one part, a piston, a pretty basic component that crossed the border six times before it got into a car, right? It was raw aluminum in Michigan, and then it was shipped to Canada to make into a basic part, and then back to Michigan for machining, and then down to Mexico to be finished.
And then it went to Wisconsin at one point, and then back to Michigan to be put in an engine. So like... We don't know exactly if in a case like that, and that's sort of the norm in the industry, we don't know if that's going to get hit every single time. But that's part of the sort of the freak out, right, is people don't know and they've got to assume the worst at this point.
When Trump started floating the idea of 25% tariffs on Mexico and Canada, how did the automakers react?
I think on the tariff piece, they felt like they've seen some of the rhetoric and bluster kind of become more manageable once it's put into policy. But then as soon as a week or two after the inauguration, he announced a 25% tariff on Mexico and Canada. I mean, that was just kind of worst case scenario. I mean, he wasn't talking about
And did auto executives try to negotiate with the Trump administration? Yeah. Yes, there's been an intense lobbying effort going on. You know, one big point they've made is like, look, you know, you can do this and it's going to hurt everybody in the industry, you know, GM and Ford and Nissan and Honda, but it's going to hurt the U.S.
companies more because they have a more extensive footprint in North America. And there are imported cars coming from Japan and in Korea virtually tariff-free. And so this is going to create an unlevel playing field. It's going to help our competitors and it's going to hurt us.
But I think the bottom line point that they've really been trying to make to the administration is like, this is going to have the opposite effect of what you think. Like, this is going to hurt our ability to invest in factories and create U.S. manufacturing jobs.
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