FT: Carmakers scramble as Trump’s tariffs threaten global supply chains

The global automotive industry is bracing for a major supply chain shock as US President Donald Trump reintroduces sweeping tariffs, raising concerns that the disruption could surpass the chaos experienced during the Covid-19 pandemic.

Uncertainty looms over the duration and scope of the tariff war, leaving carmakers hesitant to make costly strategic changes, Caliber.Az reports via Financial Times.

Trump recently issued an executive order imposing a 25 per cent tariff on all imports from Canada and Mexico, along with a 10 per cent tariff on goods imported from China. However, following a "very friendly" conversation with Mexican President Claudia Sheinbaum, the levies on Mexican imports have been postponed for a month. Similarly, an eleventh-hour agreement with Canadian Prime Minister Justin Trudeau has delayed tariffs on Canadian goods for 30 days.

Many in the automotive sector initially downplayed the threat, drawing comparisons to Trump’s first term when he ultimately refrained from implementing harsher trade measures. However, supply chain experts now warn that the worst-case scenario—a full-scale tariff war with retaliatory measures—could trigger a cascade of bankruptcies among weaker car parts suppliers.

Ian Henry, an automotive production expert at AutoAnalysis, highlighted the complexity of the global automotive supply chain, noting that a single component may cross multiple borders before reaching its final assembly. This creates a "tariff-on-tariff" situation, making compliance with new trade regulations an administrative nightmare.

"The mechanics of it are almost as bad, if not worse than the actual amounts because the accounting, bookkeeping, and paperwork requirements involved to ensure compliance are massive," Henry explained.

Mikael Bratt, CEO of Swedish seatbelt and airbag maker Autoliv, signalled that his company would immediately begin discussions to pass on the costs of higher tariffs to customers if they were imposed against Mexico. "There is no reason at all why we absorb any cost like that," Bratt stated, adding that the inevitable result would be increased vehicle prices for US consumers.

The so-called "Big Three" US carmakers—General Motors (GM), Stellantis, and Ford—are the most vulnerable due to their extensive manufacturing footprint across North America. Analysts consider GM the most exposed, particularly due to its reliance on Mexican production for high-margin models like the Chevrolet Silverado.

BNP Paribas analyst James Picariello estimated that shifting production to the US would take 12 to 18 months and add approximately $1 billion in labour costs. "A billion-dollar headwind seems like a manageable scenario right now," he said, but noted that a 25 per cent tariff would pose a far more severe challenge.

European manufacturers are also feeling the heat, with Volkswagen at the greatest risk due to 45 per cent of its US sales coming from Mexican and Canadian plants. Moody’s estimates that a 25 per cent tariff on Mexican imports could reduce Volkswagen Group’s global earnings before interest and taxes by over 15 per cent.

Despite Tesla’s close ties to Trump, analysts warn that the electric vehicle giant remains exposed. Tesla assembles its US-bound vehicles domestically but relies on Mexico for 20-25 per cent of components used in the Model 3, Model Y, and Cybertruck.

Former Canadian finance minister Chrystia Freeland has suggested that, in retaliation, Canada could target Tesla with steep levies, a move that would further complicate Musk’s efforts to maintain profitability in North America.

Japanese carmakers, particularly Mitsubishi Motors and Subaru, may have the most to gain, as they lack significant production operations in Canada or Mexico. Honda is also well-positioned, with two-thirds of its US sales coming from domestically assembled vehicles. Renault, which does not sell vehicles in the US or Canada, is largely insulated from the dispute.

Stephen Reitman, an analyst at Bernstein, emphasized that even companies less exposed to tariffs will not necessarily benefit. "There’s not many winners in all of this," he said. "It’s reducing wealth, which reduces GDP, which reduces car sales."

As the automotive industry braces for the potential economic fallout of Trump’s trade war, manufacturers must navigate a volatile landscape where shifting policies and retaliatory measures could redefine global supply chains for years to come.

By Aghakazim Guliyev