Building a car in the United States, and buying one, could get a lot more expensive.
Every American auto factory depends on Mexican parts to build its cars or trucks. That’s why President Trump’s threat to impose tariffs on Mexican imports of up to 25% by October is rattling the US auto industry. The tariffs could raise costs in the United States by tens of billions of dollars in the auto industry alone.
“We believe the tariffs on vehicles would undoubtedly be passed on to consumers, which would raise the price of vehicles sold in the US by an average of about $1,300,” wrote Emmanuel Rosner, auto analyst for Deutsche Bank.
That price increase would hurt demand for cars, perhaps cutting US auto production by as much as 3 million vehicles a year, an 18% drop from current levels, Rosner estimates.
If that happened, it would be the greatest blow to the US auto industry since the Great Recession sent the industry hurling toward near collapse 10 years ago.
The industry imported $59.4 billion in parts from Mexico last year, according to US government trade data. That includes parts used in factories and those sold in auto parts stores and repair shops.
Mexico is by far the largest foreign source of parts used by the industry. About 16% of all auto parts used by US assembly plants come from Mexico, according to an estimate from the Center for Automotive Research, a leading industry think tank.
Automakers can’t easily shift to other suppliers to avoid using parts from Mexico. Mexican parts suppliers specialize in providing low cost, labor-intensive components, which don’t make economic sense to build elsewhere, said Kristin Dziczek, vice president of industry, labor and economics at the center.
For example, 70% of wire harnesses, the collection of wires that carry power throughout a vehicle, come from Mexico. Few if any wire harnesses are made in the United States. Much of the rest of the harnesses arrive at the US-Mexican border from countries south of Mexico.
“It’s one of the first pieces you install when you’re assembling a car,” she said in April when Trump was threatening to close the border with Mexico altogether. Such a move would have shut the entire US auto industry within a week, she estimated.
“You can’t build the whole car and slap the wire harness in later. This is a big critical part that shuts down the assembly line if you don’t have it.”
Finished cars and trucks also come into the United States from Mexico — about 2.7 million autos were imported from Mexico last year, worth $52 billion, according to the US Commerce Department. That’s nearly a million more autos than came from Japan, the No. 2 source of auto imports.
A 25% tariff on all imports from Mexico would add about $28 billion a year to the cost of completed vehicles and parts.
The US auto industry is already struggling with increased costs because of the Trump administration’s tariffs on steel and aluminum. Both General Motors and Ford have estimated that rising commodity prices from those tariffs have raised their costs by more than $1 billion each.
