A month after President Trump delayed tariffs on Mexican and Canadian goods, they were reinstated on March 4, 2025. While proponents cheer the move with the hope of bringing jobs back to America, the reality of the Trump tariffs could be a bit grim for the day-to-day life of Americans – especially in the short term. Here’s why.
How tariffs work
Without getting lost in the weeds, a tariff is a tax levied by governments on imported products. This means the company importing the product will pay an increased price. In turn, that means the company has to decide if it can absorb the extra cost or if it is going to pass that cost on to consumers.
And that’s the rub.
If a company absorbs the cost of the tariff, its profit margins go down or disappear. As we live in a capitalist society, if a company isn’t going to make money, why is it selling the product?
How Trump tariffs affect the auto industry
It’s not just cars or trucks that are built in plants on the other side of the borders. As the New York Times points out, tens of billions (with a b) of dollars’ worth of engines, transmissions and other components cross the borders each week – and that’s just Mexico and Canada. China sends us billions of dollars more.
The Canadian outlet CBC News takes an in-depth look at the American-Canadian workflow and shows how parts move from Canada to the U.S. back to Canada back to the U.S. And it’s been that way since the dawn of the auto industry. The nut of the video is that the U.S. could survive without Canada, but it would be tough in the short term. In fact, it would take years if not decades to get the supply chain back on track.
According to CBC News, the U.S. builds 1.4 million vehicles in Canada, and that would require the U.S. to build five to six new assembly plants in the U.S. It would cost companies $3B to $4B each, and that’s not going to happen overnight. It would take years to rebuild what already exists across the border.
“Once you start to unravel those really complicated cross-border supply chains, you’re running the risk of actually grinding the industry to a halt,” said Dimitry Anastakis, Canadian auto industry historian in the CBC News video.
To further complicate the issue, the U.S. can’t fill positions in manufacturing that are currently open. So, by forcing more plant operations in the U.S., you do bring more jobs to the U.S., but they are jobs people aren’t qualified for or don’t want.
All that is just for Canadian operations. Add in Mexico and China, and we’re talking upwards of $100 billion over the next several years to retool, rebuild and re-educate. And the government isn’t paying for that, taxpayers are.
But what does this mean for new car prices?
So, at this point consumers are wondering what this means in real terms for their wallets. According to Automotive News, suppliers and automakers are expected to pass costs up the supply chain, especially since retaliatory tariffs from Canada and Mexico are expected. Therefore, as the article points out, vehicle prices could rise between $4,000 and $10,000.
Considering that the average price of a new car in 2025 is $48,000 and the average salary in the U.S. is $53,490, that’s a tough pill to swallow.
If you think your “American” vehicle wouldn’t be affected by price increases, we strongly recommend that you take a look at the American-Made Index. Popular “American” vehicles like the Chevrolet Silverado 1500, GMC Sierra 1500, Ram 1500, Ford Mustang Mach-E, Ford Bronco Sport and Ford Maverick are all imported from Mexico or Canada.
In fact, as the New York Times points out, General Motors could be the hardest hit American automaker since nearly 40% of all its vehicles are produced in Canada and Mexico.
As Ford CEO Jim Farley succinctly said in a Feb. 11 Automotive News article: “Let’s be real honest: Long-term 25% tariffs across the Mexican and Canadian border would blow a hole in the U.S. industry that we have never seen.”
Our take on the Trump tariffs
Yes, we could take on the entire supply chain infrastructure for building a vehicle. That’s what President Trump wants. And, yes, it would eventually bring more jobs to the U.S. But at what cost?
The short-term effect of this complete reorganization is chaos and price increases. And “short term” isn’t months. Short term is decades, which means the effects of this re-org won’t be seen during Trump’s presidency or, likely, even his lifetime.
As we pointed out in or first article on the Trump tariffs: Nobody wins in a trade war.
