Suppliers face more dire challenges than automakers amid Trump tariffs

DETROIT — President Donald Trump’s proposed tariffs on goods from Mexico and Canada would hit automotive suppliers harder than automakers, but their problems could quickly have ripple effects on the broader industry. 

Most vehicles produced in North America meet the requirements for tree trade under the United States-Mexico-Canada Agreement, but far fewer individual parts meet the stringent standards under the 2020 North American trade deal that was negotiated by Trump, according to federal trade reporting data.

USMCA compliance is important for automakers and suppliers. Products that meet the standards, which most notably include rules about where a part or material can be produced, are currently able to avoid 25% North American tariffs until the expanded levies are set to take effect April 2.

Companies are lobbying the Trump administration to continue allowing parts and vehicles that meet USMCA regulations to remain tariff-free.

 Such tariffs are added challenges for a less robust post-Covid automotive supply chain that continues to face high interest rates, labor shortages and lower profits. There are far more suppliers than automakers, many of which may only produce a few parts that could cause production disruptions if they are forced to close due to higher costs.

Shares of many larger publicly traded suppliers, such as American Axle & Manufacturing Holdings, Magna International and Adient, are down double digits this year amid the tariffs. Others such as Aptiv and Lear Corp. are roughly flat.

“There’s clearly not the profitability in the supply chain to absorb the tariffs,” Collin Shaw, president of the MEMA Original Equipment Suppliers association, told CNBC. “Suppliers are more at risk, seeing that a lower percentage of suppliers aren’t USMCA compliant.”

Roughly 63% of motor vehicle parts imported from Mexico into the United States in 2024 were complaint with USMCA standards. That compares with 92.1% of motor vehicles.

For Canada, 74.6% of motor vehicle parts and 96.9% of vehicles were imported tariff-free under USMCA in 2024. That includes 170 Canadian parts suppliers that operate facilities in 26 states, according to the Automotive Parts Manufacturers’ Association in Canada.

The vehicle and parts compliancy comes from publicly available trade data from the U.S. International Trade Commission based on the price of the imported goods. A small minority of the non-compliant goods that didn’t claim a trade program such as USMCA may have been imported tariff-free if they were being sold to the government, were in transit elsewhere or for other reasons. 

To be USMCA compliant, 75% of vehicle content must be sourced from the U.S., Canada or Mexico, with additional requirements, such as that 40% of core parts and 70% of steel and aluminum must be sourced regionally.

“I think that if we get auto tariffs that shut down the industry, many interests in our business are going to end up in court looking for an emergency state,” said Flavio Volpe, an advocate for Canada’s auto industry who leads the APMA. “Everybody’s nervous.”

Shaw, whose organization represents more than 800 auto suppliers in North America, said the supply chain is “resilient” but there’s also a “fragility” that makes major shifts in policy difficult to address quickly.

“What I’d say is very difficult, is the whipsaw back and forth,” Shaw said. “The notion that we can very easily bring these things back — it can be done. It takes time though.”

In general, Shaw said it can take years to move a plant and build a new one. Permitting for a new plant can take six to 12 months. It can take another 12 months to 18 months, if not more, to build the facility, followed by another year or more in tooling and ramping up production.

The parts that are produced for a vehicle impact whether an entire car or truck is compliant, but many major parts such as engines and transmissions are assembled locally, assisting compliancy for the finished product. The same cannot be said for parts such as wire harnesses, batteries and other smaller components.

For example, BMW said its vehicles being produced in Mexico are not USMCA compliant, largely because the engines for the vehicles are imported from Europe. Engines and transmissions tend to cross borders less often than a part that would go into one of those main components.

“This a complicated agreement,” said Kristin Dziczek, automotive policy advisor for the Federal Reserve Bank of Chicago, during its annual auto conference last month in Detroit. “So there are different categories here of components and parts and vehicles and different thresholds of what they had to phase up to for having USMCA sourcing in order to get a zero tariff for trade within the U.S.”

Since Trump’s USMCA went into effect and replaced the North American Free Trade Agreement in 2020, compliancy for both motor vehicles and parts from Mexico has notably declined, meaning more tariffs are likely being paid. Duty-free vehicles are down from 99.7% in 2019 to 92.1% in 2024, while vehicle parts are down from about 75% in 2019 to 62.5% in 2024.

 Canada’s free trade-compliant motor vehicle parts have decreased from 83.1% in 2019 to about 75% in 2024. Tariff-free vehicle imports from Canada are slightly down from 98.8% in 2019 to about 97% last year.

Auto suppliers have been adamant that they will not or cannot taken on the 25% increased costs on non-compliant USMCA parts — tariffs that could be in addition to levies on steel and aluminum and other materials.

Swamy Kotagiri is CEO of Canada-based Magna, a major global supplier for automakers that also does some contract manufacturing for automakers. He described the proposed tariffs as being “absolutely disruptive to the industry.”

“This is the industry issue. I believe very strongly that it cannot be addressed by any one constituent,” Kotagiri, an auto industry veteran, told CNBC during an interview last month. “Given the magnitude that is being discussed and talked about, it absolutely not possible for the suppliers to take on this.”

A survey earlier this month of 139 suppliers conducted by MEMA found the majorities of parts makers were affected by the steel and aluminum tariffs, with 97% expressing concerns about tariff-induced financial distress at smaller, “subtier” suppliers.

Such suppliers typically make smaller parts but can easily cause disruptions in the supply chain if their production is impacted. The importance of such suppliers was prominent during the coronavirus pandemic, when global supply chains were routinely being upended due to parts disruptions.

Executives with France-based auto supplier Forvia earlier this month said the company and its customers, including automakers, have been planning different contingency plans for the tariffs.

“The whole supply chain cannot swallow 25%,” Forvia CEO Martin Fischer said during a media event. “Cars will get more expensive for consumers if tariffs continue for a long time. The industry cannot ship at losses and swallow 25%.”