Auto industry hopes Trump's tariff threats are just a bargaining chip as deadline looms

WASHINGTON—Will President Donald Trump really go through with 25 percent tariffs on Canadian and Mexican imports?

Auto maker and supplier executives, dealers and industry analysts repeatedly asked that question at the Washington, D.C., Auto Show. They were all certain that if enacted, broad-based tariffs on such large trading partners would upend the automotive supply chain.

"There's a lot of nervousness and fragility over the potential threat, and if it becomes real, it will make a dent," said Bill Long, CEO of supplier association MEMA, speaking on a panel at the auto show Jan. 30.

Executives and analysts warned tariffs would raise the average price of a new vehicle by thousands of dollars and would be unsustainable for many suppliers, potentially stopping new-vehicle production if parts become unavailable.

The auto industry is bracing for the shock.

Trump, speaking to reporters Jan. 30 in the Oval Office, reiterated that tariffs on Canada and Mexico will come Feb. 1, though he left the door open to exemptions for Canadian oil imports.

Reuters reported Jan. 31, that Trump may push the deadline back to March 1. 

"Mexico and Canada have never been good to us on trade," Trump said, saying the tariffs would be in response to trade deficits and the flow of fentanyl into the U.S.

Still, industry executives hope any new tariffs would be short-lived or phased in over time as negotiations take place in Washington, Ottawa and Mexico City. All three panelists during an afternoon policy discussion at SAE International's Government and Industry conference here said they think Trump is likely to view tariffs primarily as a bargaining chip.

"My personal sense is that 25 percent on Canada and Mexico is going to be very difficult to do or sustain for a long period of time," said Greg Senstrum, senior policy adviser at law and lobbying firm Brownstein Hyatt Farber Schreck.

The heads of associations representing auto makers, suppliers and dealers each raised concerns about the tariffs.

Suppliers, fresh off years of supply chain challenges that reduced profit margins and increased costs, are particularly at risk from major tariffs on Canadian and Mexican imports, MEMA's Long said.

"Right now, even the threat of tariffs has the potential to be almost catastrophic," he said.

The complex regional automotive supply chain has grown over decades, dating to the passage of the North American Free Trade Agreement in 1992 and, before that, the 1965 Auto Pact between the U.S. and Canada. Parts can cross the border as many as seven times before a vehicle is assembled, said Jennifer Safavian, CEO of Autos Drive America, which represents international auto makers in the U.S.

"If something happens to one of our suppliers, that prevents the OEMs from producing in the United States, and we produce a lot of vehicles here," she said.

Potential retaliatory tariffs by Canada and Mexico would also have an adverse impact on U.S. auto production, Safavian said.

"U.S.-produced vehicles would become more expensive, and in other countries we wouldn't be able to sell those vehicles," she said. "That, in turn, would impact American jobs."

Costs are likely to be passed onto consumers, who might also have fewer options if auto makers decide to no longer import certain models because of high costs, said Cody Lusk, CEO of the American International Automobile Dealers Association. Dealers are concerned tariffs could add thousands of dollars to the cost of a new vehicle, potentially pricing consumers out of the market, he said.

"If consumers can't buy what they want, it doesn't do any of us any good," he said.

Lusk expressed optimism that negotiations could prevent or limit tariffs. Senstrum, meanwhile, said negative reactions to tariffs on Wall Street could do the same.

"The president measures economic success in this country by what happens in the stock market," he said. "If there's a negative reaction in the market to broad-based tariffs, I think that's going to be a game changer."

Industry insiders also touched on other issues during the varied policy discussions.

Most industry analysts and executives anticipated the Inflation Reduction Act's consumer incentives of up to $7,500 on new electric vehicle models to be phased out by the Republican-controlled Congress and the Trump administration. Trump, a critic of former president Joe Biden's EV policies, has signed several executive orders aimed at undoing his predecessor's actions.

The possible elimination of the consumer tax credits is likely to be popular among Republicans in Congress as a way to save money as they look to spend on other priorities during the budget reconciliation process this year, Senstrum said. Still, the GOP holds a narrow majority in the House of Representatives, leaving open the possibility the incentives could survive if there are a couple Republican holdouts.

"Everything is going to be on the table until they can get this across the finish line," he said.

Meanwhile, the Department of Transportation and the EPA appear set to roll back tighter emissions standards and regulations implemented by the Biden administration. Transportation Secretary Sean Duffy took the first step in that direction in a Jan. 28 memo that ordered NHTSA to reconsider fuel economy standards for 2022-31 model-year vehicles.

The DOT's main focus in the coming weeks is likely on investigating the Jan. 29 crash between a passenger jet and a military helicopter near Washington, D.C. But expect them to be aggressive in rolling back emissions rules over the course of the next year or two, said Ariel Wolf, who leads law firm Venable's autonomous and connected mobility group.

"I would expect there to be robust implementation and thinking around how it's going to play out two steps down the line," said Wolf, who worked in the DOT during the first Trump administration. "Buckle up."

Industry analysts signaled optimism that there will be an appetite in Washington for federal standards aimed at accelerating the deployment of automated vehicles, pointing to recent advances in technology and Tesla CEO Elon Musk's relationship with Trump.

Wolf also singled out Sen. John Thune's new role as Senate majority leader as another positive indicator for proponents of AVs, considering the South Dakota Republican's history of advancing legislation on the topic.

"The industry is in a different place in 2025 than it was in 2017 or 2018," Wolf said.

Despite concerns about tariffs, dealers are "extraordinarily optimistic" about 2025, AIADA's Lusk said. High consumer sentiment, lower interest rates and strong product offerings from auto makers are contributing to that feeling, he said.

"The business climate seems really strong," Lusk said.