Trump Tariffs: Mexico & Canada's Retaliatory Tariff Package
Despite being in a position to grow substantially in 2025, the EV market is facing uncertainty due to escalating trade tensions and supply chain disruptions.
Analysts predict that electrified vehicles could account for up to 25% of new vehicle purchases globally this year.
However, the US government's "America First" policies and retaliatory measures from trading partners threaten to disrupt this trajectory.
Trump's tariff policies: A double-edged sword
On Liberation Day, US President Donald Trump plans to impose a 25% tariff on imported cars, light trucks and auto components—a move analysts describe as "devastating" for the automotive sector.
These tariffs are expected to significantly increase vehicle prices, with some projections suggesting that a US$50,000 car could cost between US$75,000 and US$80,000 within a few years.
Ford CEO Jim Farley has warned of widespread repercussions: "Despite most Ford vehicles being assembled domestically, the impact of these tariffs will be felt across the entire industry."
Concerns have been raised about trade agreements. Canada and Mexico, which secured protections under the USMCA in 2018, now face immediate 25% tariffs on vehicles exported to the US.
The move has prompted both nations to consider retaliatory actions. Luis Rosendo Gutierrez from Mexico’s Economy Ministry commented, "Mexico is assessing all legal dimensions concerning the USMCA and WTO. The foremost consideration is to determine what best serves Mexican consumers and producers."
Retaliatory tariffs: Responses from Mexico and Canada
In response, Canada and Mexico are preparing countermeasures targeting US goods.
The Canadian government remains hopeful that the US will uphold its commitments under the USMCA but has stated that it will take action if necessary.
Analysts warn that prolonged trade conflicts could create global instability.
Rodda from Capital.com noted, "This could prolong trade uncertainty and raises questions about the extent of the radical changes Trump aims to implement in the global trade landscape."
Supply chain challenges in the expanding EV market
As the EV market continues to grow, it exposes vulnerabilities in global supply chains. The US has introduced initiatives such as the Inflation Reduction Act and Defense Production Act to bolster domestic battery production. However, challenges persist due to high production costs and reliance on imported materials.
China continues to lead in battery technology and EV production, with BYD dominating global sales.
Meanwhile, Western manufacturers struggle with rising costs, particularly due to stringent domestic sourcing requirements for critical minerals like lithium. These factors could hinder competitiveness as EV adoption accelerates worldwide.
Economic implications of retaliatory tariffs
The retaliatory tariffs imposed by Mexico and Canada could have profound effects on the U.S. automotive industry, exacerbating supply chain disruptions and increasing costs. Vehicles assembled in North America could see price increases ranging from US$4,000 to US$12,000 per unit. Additionally, tariffs on steel and aluminium have already raised costs for conventional vehicles by US$250 to US$800 and for EVs by US$2,500 or more.
Production could be significantly affected, with up to 30% of North American automotive manufacturing—equivalent to around 20,000 vehicles daily—potentially disrupted. Major automakers, including GM, Ford and Stellantis, rely on cross-border supply chains, making them particularly vulnerable.
Jim highlighted these risks: "A 25% tariff across Mexican and Canadian borders will create a gap in the industry we’ve witnessed before."
The OECD’s warning on economic slowdown
The Organisation for Economic Co-operation and Development (OECD) has raised concerns over the economic impact of these tariffs. According to the OECD, US GDP growth is projected to decline from an earlier estimate of 2.4% in 2025 to 2.2%, with further reductions expected in 2026. Canada’s growth is forecast to slow to 0.7%, while Mexico may enter a recession.
The OECD warns of rising inflation, estimating that tariffs could cost American households up to US$1,600 per year.
Michel Saugné, Chief Investment Officer at La Financière de l'Échiquier, stated, "It is very likely that the US economy will slow down significantly in the short term, dragging the global economy down with it."
Long-term impact on competitiveness and investment
As trade tensions escalate, automakers may be forced to shift production back to the US, increasing labour costs and exacerbating labour shortages. Higher production costs could reduce North American light-vehicle sales by up to 10% over the next few years.
The uncertainty surrounding trade policies is discouraging business investment and could result in long-term disruptions to global supply chains. The OECD highlighted the economic slowdown caused by tariffs is likely to outweigh any additional revenue generated for the US government.
The EV market, already undergoing a major transition, now faces added challenges from trade disputes and protectionist policies. Trump’s tariffs risk straining relations with key trading partners while complicating efforts to expand domestic EV manufacturing.
Retaliatory measures from Mexico and Canada highlight the fragility of international cooperation in the automotive sector.
As the industry navigates these challenges, the question remains whether the US supply chain can adapt swiftly enough to maintain competitiveness in an increasingly protectionist global economy.
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