Trump’s Tough Tariff Talks. A Painful Blow For GM And The U.S. Auto Industry. An Example Of Political Weapon Disguised As Economic Policy?

U.S. Auto Industry could feel a lot of pain in the coming months and so could new car purchasers. Lets see, you are in the market for a shiny new Chevy Silverado or a GMC Sierra. Now imagine the price tag suddenly skyrocketing. Why? Hmmm.. a 25% tariff on imports from Mexico and Canada, as proposed by President-elect Donald Trump, might be the culprit.

This tariff plan could hit U.S. automakers, especially General Motors (GM), where it hurts most — their bottom line. GM, the leader in exporting cars from Mexico to North America, would feel the sting more than most. In the first half of the year, Mexican plants churned out 1.4 million vehicles, and a whopping 90% of those headed straight to U.S. driveways.

Why GM Is at the Frontline

GM imports more than 750,000 vehicles annually from Canada and Mexico, with the lion’s share coming from south of the border. That’s a lot of wheels on the road — and a lot of potential for price hikes. Among those imports are GM’s heavy hitters-nearly 370,000 Chevy Silverados and GMC Sierras, plus almost 390,000 midsized SUVs.

However, it doesnt stop there, even GM’s foray into the future with electric vehicles could take a hit. Mexico is home to production of the battery-powered Equinox and Blazer SUVs. But there’s more— Trump is also eyeing the $7,500 electric vehicle subsidy for elimination. These policies combined could be a one-two punch for GM’s EV ambitions.

It’s not just GM feeling the heat. Ford and Stellantis, also heavyweights in Mexico, would bear the brunt of this tariff. Shares in GM already dipped following the announcement, a possible early sign of market jitters.

A Threat to Jobs and the USMCA Supply Chain

The implications extend beyond corporate profits. GM employs 125,000 people in North America. A slump in sales of Mexico-made cars could ripple through payrolls on both sides of the border. Kenneth Smith Ramos, Mexico’s former chief negotiator for the USMCA trade pact, put it bluntly: “The U.S. would be shooting itself in the foot.”

The supply chain impact? Massive. Mexico and Canada collectively send over $100 billion in auto parts to the U.S., accounting for more than 50% of all imports. A tariff would not only push up vehicle prices but also strain this tightly woven cross-border network.

Feel the Heat

For years, free trade agreements like NAFTA and its successor, USMCA, have fueled the rapid growth of Mexico’s automotive industry, turning it into a manufacturing powerhouse. But with President-elect Donald Trump’s proposed 25% tariff on imports from Mexico and Canada, that success story is at risk of jeopardy—and the shockwaves will be felt far beyond factory floors.

Who Pays the Price? U.S. Consumers.

While the tariffs may be aimed at foreign imports, unfortunately, the real burden will land on U.S. consumers. The mechanics are simple: companies importing vehicles and parts will pay the tariffs upfront, but those costs won’t stop there. As Sudeep Suman from AlixPartners explains, “Ultimately, the consumer will bear this.”

That means price hikes on popular models, particularly pickup trucks, a staple in rural America—an area that overwhelmingly supported Trump. The Toyota Tacoma, Ford Maverick, Stellantis’ Ram, and GM’s Chevrolet Silverado and GMC Sierra are all produced in Mexico. These beloved workhorses may soon come with heftier price tags, making them less accessible for everyday buyers.

Profit Squeeze and A Supply Chain Ripple Effect

While GM may have enough profit cushion to absorb some of the tariff costs on their high-margin trucks, not every automaker is in the same boat. Brands producing budget-friendly models, like the Nissan Sentra, could face a tough choice: raise prices and risk losing customers or eat the cost and watch profits dwindle.

Sam Fiorani of AutoForecast Solutions breaks it down: “Somebody is going to have to eat that cost, and that’s going to be the manufacturer or the customer. All vehicles sold in the United States would be more expensive or considerably less profitable.”

The tariffs won’t just hit the vehicles themselves but also the parts needed to build them. Mexico accounts for 43% of all U.S. auto-part imports, more than any other country. This deeply interconnected supply chain helps keep production costs low.

Francisco Gonzales, head of Mexico’s National Industry of Autoparts, emphasizes the value of regional cooperation: “Automakers cannot be producing everything in a single country because it makes it uncompetitive.”

In other words, this isn’t just about tariffs on finished cars—it’s about the parts that make those cars, the jobs that build them, and the wallets of the people who buy them.

Tariffs, Drugs, and Immigration

Trump’s proposed 25% tariffs on Mexico and Canada have left many scratching their heads, wondering what the real goal is. On the surface, it seems like an economic move, but dig a little deeper, and the lines blur into issues of immigration, drug trafficking, and border security.

Hence is this a political weapon disguised as economic policy?

Trump’s rhetoric suggests that the tariffs are a punishment for what he refers to as an “invasion” of illegal immigrants and the trafficking of fentanyl. While tariffs are traditionally a tool for protecting domestic industries or raising revenue, this proposal appears to have a different agenda.

Thomas Ryan, North America economist at Capital Economics, sees it as a strategic ploy rather than a financial policy. “It suggests this specific tariff threat is more of a negotiating tool than a revenue raiser,” he explains. By tying tariffs to non-economic issues, Trump may be leveraging economic pressure to force Mexico and Canada into action on border control and drug trafficking.

However, this tactic isn’t without its risks. Mexican President Claudia Sheinbaum has already called for dialogue and warned that such tariffs would worsen inflation and lead to job losses on both sides of the border. “It lacks sense,” she said, emphasizing that the economic fallout could be severe.

Retaliation isn’t off the table either. Although Mexico’s economy is heavily dependent on U.S. exports, any countermeasures could disrupt supply chains and hurt American businesses, particularly in the automotive sector.

China’s Role in the Mix

Interestingly, Trump’s tariff proposal could also have a side effect: limiting Chinese automakers from using Mexico as a backdoor into the U.S. market. While Chinese electric vehicle imports are already restricted by existing trade barriers, the new tariffs could further discourage any attempts to bypass those restrictions.

A Rough Road Ahead

The U.S. auto industry is staring down a likely tough period staring at a harsh reality – higher production costs, strained supply chains, and a likely rise in vehicle prices. Add to that a less-than-rosy economic scenario, and the outlook for the industry seems increasingly grim.
The proposed tariffs could deal a heavy blow to automakers heavily reliant on cross-border manufacturing. General Motors (GM), Ford, and Stellantis stand to lose the most, given their extensive operations in Mexico.

The broader economic outlook isn’t doing the auto industry any favors. Rising inflation, higher interest rates, and wage stagnation are squeezing household budgets. Consumers who once saw vehicle upgrades as routine may now delay purchases, especially with the anticipated price increases due to tariffs.

The potential removal of the $7,500 EV subsidy, another of Trump’s proposed moves, could also slow the industry’s push towards electrification. GM’s new electric Equinox and Blazer SUVs, produced in Mexico, are already facing cost pressures. If the subsidy is cut, it could further deter price-sensitive EV buyers, stalling progress in a market that’s just beginning to gain momentum.

The North American auto supply chain is deeply interconnected, with Mexico alone accounting for 43% of all U.S. auto-part imports. Any disruption to this flow could lead to production delays and increased costs, ultimately affecting vehicle affordability and availability

Investor and Market Reactions

Investor confidence in the auto sector is visibly shaken. Following the tariff announcement, GM’s shares fell 8.2%, with Stellantis down 5.5% and Ford 2.6%. This reaction reflects growing concerns about the industry’s profitability and resilience in the face of rising costs and shrinking margins.

For now, automakers, investors, and consumers are buckling up for a bumpy ride, hoping the road ahead eventually smooths out.