As former President Donald Trump’s proposed tariffs on goods imported from Mexico and Canada loom large, it’s not the major automakers that stand to lose the most—it’s their suppliers. Industry experts warn that the auto supply chain, already strained by years of disruption, could face devastating consequences that ripple through the entire automotive sector if these new trade barriers are enforced.

While most vehicles assembled in North America currently meet USMCA (United States-Mexico-Canada Agreement) requirements and can avoid heavy tariffs, far fewer individual auto parts meet the stricter content sourcing rules outlined in Trump’s renegotiated 2020 trade deal. And this discrepancy could prove costly for an industry where parts suppliers form the backbone of manufacturing.

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The Tariff Timeline and What’s at Stake

Trump’s tariffs, targeting non-USMCA-compliant goods, are set to impose a 25% duty on imports starting April 2, 2025. While automakers are lobbying to delay or exempt these tariffs, many suppliers are running out of time.

Collin Shaw, president of MEMA Original Equipment Suppliers, describes the situation bluntly:

“There’s simply not enough profitability in the supply chain to absorb these tariffs.”

Shaw’s group represents more than 800 suppliers across North America. Their message is clear—while automakers have some flexibility, smaller suppliers risk being priced out of the market or shuttered entirely.

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Why Auto Suppliers Are More Vulnerable

Unlike the automakers—many of which have diversified supply chains and greater financial buffers—suppliers tend to be smaller, specialized businesses. Many manufacture niche components that are critical to vehicle production but don’t offer much room for absorbing increased costs.

Consider this:

• There are over 5,000 auto suppliers in North America, compared to roughly 50 automakers.
• Suppliers often work on thin margins (as low as 3% to 5%).
• Labor shortages, high interest rates, and inflated material costs post-Covid have already stretched their finances thin.
• MEMA reports that 97% of suppliers are worried about their survival under the proposed tariffs.

Swamy Kotagiri, CEO of Magna International, a major Canadian supplier, describes the tariffs as an “industry-wide issue”, not just a problem for individual companies:

“There’s no way the supply chain can swallow a 25% cost hike. This will disrupt the entire industry.”

The Compliance Problem: Vehicles vs. Parts

The USMCA’s stringent sourcing requirements are easier for automakers to navigate when assembling vehicles. But for individual parts, it’s another story.

• 63% of motor vehicle parts imported from Mexico into the U.S. in 2024 were USMCA-compliant.
• By comparison, 92.1% of complete motor vehicles were compliant.
• For Canada, 74.6% of parts and 96.9% of vehicles met the USMCA criteria.

The drop in parts compliance is stark compared to pre-USMCA days:

• In 2019, under NAFTA, 75% of Mexican parts qualified for tariff-free trade. In 2024, that figure fell to 62.5%.
• Canadian parts compliance slipped from 83.1% in 2019 to 75% today.

The decline increases the likelihood that more tariffs are already being paid and more are on the horizon.

What’s Making Compliance So Hard?

Under USMCA, to qualify for duty-free trade:

• 75% of a vehicle’s content must be sourced from North America.
• 40% of core parts (like engines and transmissions) must come from regions where workers earn at least $16 per hour.
• 70% of steel and aluminum must also be locally sourced.

But the complexities go deeper. For instance, BMW assembles vehicles in Mexico but fails to meet USMCA requirements because it imports engines from Europe. Engines and transmissions tend to stay within regional borders, but wire harnesses, batteries, and electronic components often do not.
Kristin Dziczek, automotive policy advisor at the Federal Reserve Bank of Chicago, explains:

“This is a complicated agreement. There are different sourcing categories, thresholds, and timelines for parts and vehicles.”

How Tariffs Could Trigger a Domino Effect

The risk to suppliers isn’t just about profitability—it’s about keeping the assembly lines moving.
A disruption in just one critical component, like a semiconductor or brake system, can halt production across multiple factories.

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association (APMA) in Canada, said the situation has already become tense:

“If auto tariffs shut down the industry, we’ll see legal battles. Everyone’s nervous.”

Moving Production Is Not a Quick Fix

Even if suppliers wanted to relocate production to avoid tariffs, it’s not something that happens overnight.

• Permitting a new facility can take 6 to 12 months.
• Construction requires another 12 to 18 months.
• Tooling and ramp-up for production adds another year (or more).

Shaw calls this “the whipsaw effect”, where policy shifts too fast for companies to adapt without major disruption.

What the Industry Is Doing to Prepare

Many companies are scrambling for contingency plans. Forvia, a French automotive supplier, revealed it has been working with its automaker clients to figure out alternative strategies.
CEO Martin Fischer said plainly:

“The entire supply chain cannot eat a 25% tariff. If this lasts, cars will become more expensive for consumers.”

Forvia isn’t alone:

• American Axle & Manufacturing Holdings, Magna International, and Adient have seen their stock prices drop double digits this year.
• Aptiv and Lear Corp., while stable for now, are issuing cautionary statements.
• MEMA’s survey found the closures if tariffs proceed.at over 90% of suppliers are considering price increases, layoffs, or plant 

What This Means for Car Buyers

The bottom line? Higher costs will likely be passed on to consumers.

• Vehicles could become 5% to 10% more expensive, depending on how deeply tariffs hit parts prices.
• Expect longer wait times for deliveries as supply chain bottlenecks increase.
• Automakers may scale back production of lower-margin vehicles, focusing instead on higher-priced SUVs and trucks to offset costs.

The Bigger Picture: Will This Reshape North American Auto Manufacturing?

Trump’s tariffs, if implemented, could reshape how and where vehicles are made in North America.

• Some suppliers may nearshore operations to the U.S. or Canada.
• Others may exit the market, especially smaller “subtier” suppliers.
• Larger suppliers might push for more automated production to reduce labor costs and remain competitive.

But until the policy landscape settles, uncertainty will remain the auto industry’s biggest enemy.

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