Tariffs on imports from Mexico and Canada can make cheap cars expensive

If you think the cost of goods is expensive now, price tags could come with added weight in January if the incoming Trump administration follows through on its threat of widespread tariffs. This would not only affect goods from overseas, but also anything made in Canada and Mexico. Cars, in particular, could see the RRP difference rise by thousands.

Tariffs are a delicate matter, as is everything related to breaking up or making money. However, they are an entry and exit cost to keep trade moving while protecting the domestic market. A rate increase or decrease, however, is not a direct increase or decrease in cost that is passed on to the consumer. Although this can happen, sometimes the costs are borne by the importer, or the exporter, or a combination of all three groups. “It depends” is a vague answer because product, market, and scale all come into play.

For example, the Biden administration implemented a 100 percent import tariff on Chinese-made electric vehicles. Previously, the tariff was 25 percent. Oh, plus 2.5 percent import tax. why? To prevent cheap Chinese cars from undercutting the price of those made in North America. But what did the Chinese automakers do? They buy land and build factories in Mexico take advantage United States, Mexico and Canada Agreement (USMCA).

As far as the automobile industry is concerned, the agreement states that for now “75 percent of the vehicle content (70 percent for heavy trucks) are made in North America and that major auto parts come from the United States, Canada or Mexico,” then the vehicles will receive duty-free access to imports and exports. Chinese companies have not found a loophole; they are simple know how to do business.

The Trump administration is proposing a different approach: Everyone gets the tariffs, including our neighbors. According to Automotive newsthe president-elect calls for a 60 percent raise Chinese products and a 20 percent increase in all other imports. For Canada and Mexico, a 25 percent tariff will be added to “all goods.”

Canada has several plants producing vehicles for the US domestic market and the US, Mexico, however, has become the world’s seventh largest producer of passenger cars and is the US’s largest trading partner overall.

According to International Trade Association88 percent of the 3.5 million cars produced in Mexico each year are exported. Of that number, 76 percent is for mass market car manufacturers in the US Ford, General Motors Company, Honda, Teslaand Toyoie properties south of the border, as well as luxury brands Audi, BMWand Mercedes-Benz.

However, the proposed tariffs will greatly affect GM and Star which produce large volumes of high-margin vehicles in Canada and Mexico (such as full-size pickup trucks). CNBC reported last week that GM shares fell 9 percent and Stellantis fell 5.7 percent after the tariffs were announced. Separately, Reuters cited a report by S&P Global when it said US and European automakers would lose up to 17 percent of their underlying profits if tariffs were imposed.

Because manufacturing plants tend to be platform and vehicle oriented, switching an assembly line to produce a different product is more than just a matter of programming. Even if production could be changed, Automotive news says Canada and Mexico produce nearly $100 billion worth of auto parts assembled in the United States. Essentially, prices go up regardless of where the car is made.

So how much more will be added to the monroney? The same thing AN the article suggests an average markup of $3,000. That may not seem like an exorbitant price for a Made in North America label, but the latest numbers from Kelly’s Blue Book the average price of a new car is currently $48,623. Oh, 50 thousand for a new car? How much does a truck or SUV cost? Higher prices could also lead to a drop in US demand to one million units. This means that fewer people are required to work on the assembly lines.

However, whether any of this will actually happen and to what extent remains to be seen. However, given the amount of international chatter, the proposed tariffs create potential leverage in current and future trade negotiations.

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