The imposition of 25% tariffs on Canadian and Mexican vehicle imports, alongside new 20% duties on Chinese auto products, is set to significantly impact North American automotive supply chains, with a knock-on effect on the European motor financing sector.
Analysts suggest that these measures will sharply increase production costs for original equipment manufacturers (OEMs) and suppliers, with the effects rippling across global markets, including European motor finance.
Go deeper with GlobalData
According to the Anderson Economic Group (AEG), the cost to build a crossover utility vehicle in the US is expected to rise by at least $4,000. For electric vehicles (EVs), the impact is even more pronounced, with price increases reaching as high as $12,000 per vehicle.
These costs will likely be passed on to consumers, leading to a sharp decline in sales for models most affected by the tariffs, Bloomberg reported.
Implications for the US market
The automotive industry relies heavily on integrated supply chains that cross borders multiple times before final assembly. A modern motor vehicle typically consists of around 30,000 parts.
This includes everything from the engine block and transmission to the smallest nuts, bolts, and clips. The assembly of a motor vehicle involves multiple geographical locations. In Europe alone there are 322 automobile assembly, engine, and battery production plants, according to the European Automobile Manufacturers’ Association.
The new tariffs will not only affect completed vehicle imports but also essential parts and components, which are subject to multiple tariff applications as they move through the production process. This complex supply network means that cost increases will compound at every stage, further exacerbating price inflation for consumers.
AEG’s study outlines substantial cost increases across a range of vehicles:
- Gas-powered crossovers: +$3,500
- Pickup trucks: +$8,000
- Full-size SUVs: +$9,000
- Small cars: +$6,200
These increases come amid an already challenging environment for US car buyers, with average new vehicle prices approaching $50,000 — more than 20% higher than five years ago. The rising cost of vehicles risks further squeezing affordability, with higher interest rates and declining consumer confidence adding to the pressures on the automotive sector.
A competitive imbalance?
The tariff policy has also sparked concerns about trade imbalances within the US auto industry. Ford CEO Jim Farley has pointed out that while Mexico and Canada face significant new trade barriers, South Korean and Japanese automakers continue to import vehicles into the US tariff-free under existing agreements.
Hyundai and Kia, for example, import 600,000 units annually to the US without additional duties, while Toyota imports 500,000 vehicles, Bloomberg reported.
This disparity raises questions about the broader trade strategy and whether selective tariffs will truly benefit US automakers or simply make cars more expensive for American consumers.
European motor finance considerations
For European finance professionals and investors in the motor industry, the US tariff developments carry significant implications. While European automakers largely export higher-end models to the US, any disruption to North American supply chains could influence global pricing dynamics.
Increased costs for US-built vehicles could make European imports more attractive to American buyers, particularly in premium segments. Additionally, European parts suppliers with operations in Canada and Mexico may face indirect cost pressures as supply chains adjust to the new trade environment.
Outlook and uncertainties
The effectiveness and sustainability of the tariffs remain uncertain, particularly given the ongoing legal and trade disputes that may arise. Equally, non-trade issues and the US reaction to retaliatory tariffs (and related trade negotiations) may still lead to revisions or policy reversals.
