Tariffs Derail Automotive Industry in a Matter of Hours

It took only a few hours after the implementation of the 25% tariffs on all light vehicles destined for the United States for disruptions to reach North American assembly plants and at least one car manufacturer to announce temporary layoffs.

President Donald J. Trump's “Liberation Day” was greeted on Wall Street with a 3.98% drop in the Dow Jones index and an even greater loss of 5.97% in the Nasdaq. Just 24 hours later, as stocks continued to plummet, the Federal Reserve announced that tariffs would result in higher inflation and a slowdown in economic growth.

Minutes later, in a note to his clients, JPMorgan's chief US economist, Michael Feroli, warned of a 60% probability of recession starting in the third quarter of 2025, with a 1% contraction in GDP and an unemployment rate that would rise to 5.3%.

In the automotive industry, Stellantis was the first to halt production at two plants: Windsor, Ontario, and Toluca, Mexico, as of April 7. The Canadian plant will reopen two weeks later, while the Mexican plant will remain idle for the rest of the month.

Five US plants, two stamping plants in Michigan and three in Indiana dedicated to metal casting and powertrain assembly — which support production programs in Canada and Mexico — will face temporary layoffs affecting almost 1,000 people.

Another Mexican operation that has suspended the assembly of cars destined for the United States is Infiniti, Nissan's luxury brand. According to a report by AutoNews, the company sent a memo to dealers informing them that production of the QX50 and its Sportback variant, the QX55, would be halted “until further notice”.

The SUV, manufactured in Aguascalientes, is one of the best-selling models of the already troubled company.

What's at stake

The outcome of this new era of foreign trade remains to be seen, but the stakes are high for Mexico. Last year, the country's trade surplus with the United States reached $171.8 billion, of which $137.8 billion came from the automotive industry; light vehicles, heavy trucks and auto parts combined.

Although Mexico is expected to receive preferential treatment, at least for the time being, with tariffs applied only to the non-US content of each vehicle, this does not mean that only operations south of the border will be affected, as many vehicles assembled in US automotive plants contain a high percentage of components manufactured in Mexican facilities.

Even companies like Tesla, which supplies the US market with 100% domestic vehicles, manufacture products with a Mexican content of between 20% and 25%, according to the latest data from the National Highway Traffic Safety Administration (NHTSA).

The latest report of the US Automobile Labeling Act (AALA) shows that the best-selling light vehicle in the United States, the Ford F150 pickup, has only 45% of its content manufactured in the United States and Canada, and at least one of its engine options is manufactured in Mexico.

Its big brother, the Ford Super Duty, is made with engines that are 100% sourced from either Canada or Mexico, including the 6.7-liter Power Stroke Diesel V8 made in the Chihuahua City complex. The Blue Oval company made 397,673 units of these already expensive trucks last year.

Similar cases can be found in the Mazda CX-50 and its hybrid variant, manufactured in the United States with Mexican engines, and in vehicles produced south of the Rio Grande with American engines, such as the Acura ADX and the Toyota Tacoma.

Despite the multi-million dollar investments, there are still cars manufactured in Mexico that do not comply with USMCA standards and will therefore face higher tariffs.

BMW could be one of the most exposed, as vehicles assembled in San Luis Potosí have more European than Mexican content (according to AALA criteria), including engines and transmissions, which are imported from Austria and Germany, respectively.

Mexico goes for “Preferential Treatment”

So far, the Mexican government has avoided imposing retaliatory tariffs, focusing its efforts on obtaining what it calls preferential treatment, given the importance of exports to the United States as a fundamental pillar of the country's economy.

According to Economy Secretary Marcelo Ebrard, Mexico's goal is to achieve the best possible agreement within 40 days of the tariffs coming into effect.

President Claudia Sheinbaum has also instructed her economic cabinet to diversify trade relations, with specific efforts to reach a free trade agreement with South Korea, according to what Kia executives in Mexico shared this information during the last MexicoNow Nearshoring Summit in El Paso.

For the South Korean car manufacturer, this is a particularly interesting issue because it has already exported vehicles to that country from the Pesquería plant and sees the possible agreement as an opportunity for more exporters to reach the rest of Asia, said Juan Héctor Algravez, the company's director of Institutional Relations and Government Affairs in Mexico.

Sheinbaum also revealed plans to boost domestic sales of vehicles manufactured in Mexico, but did not elaborate. However, these efforts seem more geared towards softening the impact of tariffs than offering a realistic alternative to the trade relationship between Mexico and the United States.