Trump’s proposed auto tariffs’ impact on the supply chain and consumers

On March 26, President Donald Trump signed a proclamation invoking Section 232 of the Trade Expansion Act of 1962, imposing a 25% tariff on imported automobiles and certain automotive parts. The sweeping measure applies to passenger vehicles, light trucks and critical components such as engines, transmissions, powertrain parts and electrical systems.

While vehicles imported under the United States-Mexico-Canada Agreement (USMCA) will be eligible for partial exemption, this relief only applies to the U.S.-origin portion of their content. Until the U.S. Secretary of Commerce and U.S. Customs and Border Protection establish a more refined valuation system, USMCA-compliant parts will remain tariff-free — a temporary reprieve in an otherwise complex new landscape.

Why this matters — it’s not just about foreign automakers

This announcement, made ahead of broader tariff discussions slated for April 2, has major implications across the entire automotive industry — including U.S.-based automakers. While the tariff intends to promote domestic manufacturing, the reality is far more challenging.

Since the inception of NAFTA in 1994 (now USMCA), the automotive industry has become deeply integrated across North America. Automakers have strategically located assembly and component manufacturing in Canada and Mexico to create a cost-effective, just-in-time supply chain. Many components — especially large ones like engines — cross borders multiple times before final assembly, increasing tariff complexity.

In 2023, 5.4 million vehicles were produced in Mexico and Canada, with a significant portion destined for the U.S. market. Add imports from Europe, Japan and South Korea, and the volume of impacted vehicles becomes substantial.

Consumers will pay the price

Although the tariff technically targets imported products, automakers are expected to distribute the added cost across their entire product lines. That means consumers will likely see higher prices, even for vehicles built in the U.S.

Currently, the average transaction price for a new vehicle in the U.S. hovers around $48,000. We anticipate that number could rise to $51,000 if automakers spread the cost impact — a strategy driven by financial logic and feasibility. It simply is not operationally realistic to isolate the tariff’s cost to only imported models.

This price hike is expected to dampen consumer demand, which will soften vehicle sales in 2025. And fewer vehicles sold means fewer vehicles produced — creating a ripple effect throughout the supply chain.

Suppliers face a critical crossroads

Automotive suppliers are already navigating a soft market, and these tariffs threaten to exacerbate the downturn. Even a short-term implementation — just three to six months — could have an outsized impact on production schedules and order volumes. In fact, we predict North American 2025 vehicle sales volumes to flatten compared to last year.

No tier of the supply chain is immune. While USMCA compliance offers some protection, not all suppliers and OEMs are compliant. Only approximately 63% of motor vehicle parts imported from Mexico currently meet USMCA rules-of-origin requirements, while 74.6% of parts and vehicles from Canada are compliant. That leaves a considerable portion of suppliers exposed to new costs and regulatory complexity.

What suppliers should do

If you are part of the automotive supply chain, now is the time to take stock of your operations by asking: What vehicle(s) is my part used in? Where is that vehicle produced? Is our content USMCA-compliant? Proactive communication with OEMs and downstream customers is essential. Understanding how your partners are responding — and how they expect you to adapt — will be key to maintaining continuity and competitiveness in the months ahead.

The full economic impact of these new tariffs is still unfolding, but one thing is clear: Uncertainty will persist. For manufacturers, agility and insight will be the difference between resilience and disruption. Businesses must stay informed and flexible while preparing to pivot as this complex policy shift takes shape.

How Wipfli can help

Wipfli’s experienced manufacturing and tax professionals are ready to guide your business through this evolving environment. From compliance and cost modeling to operational strategy, we help clients navigate uncertainty and protect their bottom line. Contact us to assess how these tariffs could impact your business — and how to stay ahead.

For continuous updates on administration policies impacting the supply chain, follow our policy updates page.