The CATO institute does a great job explaining why tariffs on Canada and Mexico would be a very bad idea.
Canada/Mexico Tariffs Would Harm the US Auto Industry
Please consider Canada/Mexico Tariffs Would Harm the US Auto Industry (and American Car Buyers)
President Donald Trump has repeatedly threatened to impose 25 percent tariffs on all goods imported into the United States from Canada and Mexico, with the levies coming as soon as this Saturday, February 1.
Mexico and Canada Are the United States’ Top Trading Partners for Automotive Goods
Mexico and Canada are both the main sources of US imports of motor vehicles and motor vehicle parts and the major purchasers of US exports of these same products. Both countries together account for nearly half of US imports and exports of motor vehicles and parts.
A 25 percent tariff on these products would not just harm US consumers—both individuals buying vehicles and manufacturers using automotive inputs—but could also expose US companies to decreased sales in, and potential retaliation from, Canada and Mexico.
Decades of free trade have caused the US, Canadian, and Mexican automotive industries to be highly integrated, with producers in all three countries shipping finished goods and parts across the United States’ northern and southern borders.
(The American and Canadian automotive supply chains are so interlinked that the National Highway Traffic Safety Administration’s list does not distinguish between American-made and Canadian-made content embedded in these vehicles.)
Many cars sold in the United States are made in Mexico with core parts from the United States and Canada, meaning that much (if not most) of the vehicles’ value comes from work performed by American workers and companies during production.
Simple Capacitor Journey
Multiple Tariffs on a Single Product?
The North American automotive supply chain is so interwoven across all three USMCA countries that an engine, transmission, or other automotive component might cross the US-Canada and US-Mexico borders as much as seven or eight times before it ends up in a finished vehicle
Conclusion
As I wrote late last year, the US automotive industry is a great example of the complexities of 21st-century manufacturing and the benefits of globalization:
[I]t’s widely acknowledged by automotive industry experts that freer trade and investment have generally fueled the growth and stability of North American automotive production since the 1990s.… By permanently reducing trade barriers, trade agreements have been credited with attracting more foreign investment and boosting overall industry competitiveness by lowering production costs (e.g., via imported inputs), utilizing national comparative advantages, and opening overseas markets.
It’s also a stark example of how and why tariffs would harm the modern US economy, including the manufacturing sector and American consumers. Automotive industry experts have warned that the tariffs would quickly “add a minimum of thousands of dollars” to the price of a new car in all three countries.
Will Cooler Heads Prevail?
CATO hopes cooler heads prevail and so do I. There is much more in the report with at least five more charts.
For weeks I could not shake the feeling that Trump will not put 25 percent tariffs on Mexico and Canada.
But Trump has now repeated his threat so often that perhaps he feels compelled to take some action.
Given the cross-border auto complications, perhaps he excludes autos. But any action will likely result in retaliations.
Reflections on Breaking Deals
Any tariffs, no matter how small, would break Trump’s own USMCA “best trade deal in history.”
Trump may cite other rules or declare more nonsensical emergencies on steel or whatever, but none of that will pass the smell test.
If Trump resorts to breaking deals on a whim or for extraneous reasons like drugs, he is doing little more than telling the world he will not honor his deals.
This is not the same as breaking the Paris Climate Accord because that was never signed off by the US Senate. In contrast the USMCA deal was ratified 89-10.
I suspect Trump may find a way to “postpone” these tariffs following pledges by Canada and Mexico to do better on the border.
USMCA is due to be renegotiated in June of 2026. But the key date now is February 1, 2025. That’s when Trump has many times stated he will start 25 percent tariffs on Canada and Mexico.
If Trump really wants to do something, China and Vietnam are much better targets.
Related Posts
January 13: China’s Trade Balance Soars to a Record $1 Trillion
China’s exports surge while imports stagnate. Is global retaliation coming?
January 29: Imports Surge 3.9 Percent Exports Plunge 4.5 Percent, New Trade Deficit Record
Today’s trade report will have Trump howling.
The huge surge in imports was no doubt related to a mad rush to beat Trumpian tariffs.
January 29: Trump Announces New Tariffs on Computer Chips and Semiconductors
The irony in Trump’s build in the US rant rant is Taiwan Semiconductor is building in the US, and Nippon Steel wants to.
Both Biden and Trump said no to Nippon on preposterous grounds of national security. How the hell is a steel plant in the US a security threat?
Trump is going to crash the US economy. And Mish will finally get his recession.
NO not tariffs, it’s 100K over priced Trucks that has and will hurt the US auto industry.
Americans pay way too much for their automobiles. If China can make nice 10K EV’s, then that tells you just how much of that 35K ho-hum, cloth seat vehicle’s cost is going to wages and benefits…way too much. There’s also got to be tons of Democrat climate taxes and similar garbage inflating the price some more. The profits I am generally ok with, as long as the free market is deciding what they should be, which for automobiles that’s generally the case imo.
I’m not sure if the quality is up to North American, Japanese or European standards.
https://youtu.be/TCbmaJM67YE?si=FqFtA-npSby_RlDG
I have rode kn some of the new chinese vehicles and they ride nicer than a lot of GM, Ford p, and Stellantis vehicles.
Will this affect the Amish self driving vehicles too?
Are there reliable numbers on the net flow from the US to Canada (or vice versa) of:
I’m curious. Trump’s numbers and facts are almost wrong by definition.
No shit. Tariffs hit everything downstream and not just the direct customers. That drop in demand due to price increases tamp down demand for all the things that are related to layoffs.
In regards to the topic of parts going back and forth across borders, the real cost of tariffs lies in the paper work and logistics and that is not trivial. But no US content need be taxed as long as the paper work is complete. A machine built in US and shipped for some procedure to Canada will have a value on leaving and a new value on returning. Only the added value is taxed unless one is careless and just ships it over.
Ronald Reagan fired Air Traffic controllers when they struck to test his resolve.
It was too early in his administration to flinch. Wrong choice was made.
WEF aka Justin Trudeau think they have a chance against Trump. Wrong choice being made.
Tariff starts Feb 1. Soon to see how long Trudeau wants to walk this road. Trudeau might have offered a simple acknowledgement there was a dispute worth talking about.
Give it a break. You just rid rid yourselves of WEF aka DNC. The rest will come in due course.
Am unsure of what you are suggesting in your post.
Do you think that Trump address to WEF was just for fun?
That was a declaration of War against everything they have been advocating for decades.
Trudeau was/is one of their young leaders. Is he going to jeopardize Canada for an ideology is the only question yet to be answered.
Yes he is WEF controlled and he was in the young leaders program. What I was trying to say is the DNC is part and parcel WEF and considerably more powerful than Trudeau.. The US has thankfully moved to Trump, it might be painful for us but we are still very supportive of the change. The pendulum swing was way too far to the left in recent years and so it will go quite far right also, worldwide. We’ll be one of the next to move like the US just did.
Many years ago I worked with a bunch of French Canadians who moved down here where I am.
What a Hard working, Fun loving bunch they were.
Many very good memories of those times.
I truly hope Canada can work things out with US.
No problem Mish. As with the canceled prohibition amendment, all congress has to do is end the 16th amendment for progressive personal income taxes and it’s VAT heaven with a federal sales tariff. Problem solved and with a downsized IRS.
Show me the math!!! Just empty words..
What Trump wants to do is reshore all manufacturing. That can take years to do and not without a lot of economic pain and sacrifice from everyone. Are you (collective you) willing to sacrifice your life for a few years of economic pain in order to reshore all manufacturing ? This would mean a deep recession for about 2-3 years and likely defaulting on American debt due to lack of money at the federal level. While many see huge inflationary risk, I don’t think the Fed is going to come to America’s rescue anymore. The plan is to sell the assets at the Fed that are anything but US treasuries. I see huge deflationary depression ahead before recovery starting around 2030.
I see huge deflationary pressure in housing, as supply is almost back to pre-covid, but everyone who can buy at an inflated price, already has.
Housing prices will never meaningfully decline back to pre-covid pricing, they will continue to march up. There is simply too much demand for housing and too little supply.
The American auto industry won’t be harmed. Autos manufactured with foreign parts are not American cars. Detroit can reshore to right to work states, and hire hard working non union Americans to avoid tariffs. Detroit can hire competent rather than DEI engineers and design to German and Japanese standards. Abandon planned obsolescence fraud. Make American cars great again.
The grand plan is to reshore all those high paid low tech jobs manufacturing auto parts, textiles, electronics, food, and energy. Debase the dollar until welfare and minimum wage is not worth a tinker’s damn. The welfare class can get good paying jobs and pay taxes like the rest of us.
If US manufacturing made sense it would have never left in the first place. It makes no sense so most of it left and is never returning.
In order for it to make sense, we need an army of serfs like China, and that’s the endgame of these changes.
When we’re done, Applebees will be considered fine dining, only for very special occasions.
The UAW has already poisoned the US auto industry; it is a dead man walking. 25% tariffs are the only thing that can keep it alive a little longer.
It just underlines the absurdity of long supply lines where each step involves transporting components thousand of miles. US carmakers do not make cars. They just assemble the pieces ordered from their suppliers. It was a gigantic strategic error because not only do they give away margins to their suppliers, they also lose flexibility since modifying a part involves lengthy negotiations with the supplier. Tesla is the only US company that actually manufactures cars.
I think you nailed it Doug.
The big damage the US auto industry was the EV mandate. The US auto induustry is dead in the water now.
The basic problem is that we’re all paid too much money. We can’t afford to make things at reasonable prices anymore.
Looking at the auto industry, the average worker makes $28. Over 4 years starting in 2024, these UAW workers will get a 25% pay raise. So in 4 years, the average UAW worker will be making $35 an hour or $65K a year. Granted, that’s not an enormous amount of money, but it’s the AVERAGE & is a major reason that the average car in 4 years will be in excess of $50K. But, hey, the engineers, managers, CEOs etc all make too much money.
I’m a teacher, and I make too much money. Nurses, doctors, everyone makes too much money. Here’s the best example we can give. The NGAD 6th generation fighter is expected to cost $300M each. China’s J-36 which is already flight testing isn’t going to cost anywhere near that amount. How much? I don’t know, but $30-40M is a reasonable estimate. China developed its 5th gen J-20 in 6 years compared to 16 years for the F-22. So, the compounding of time makes a difference as well.
The mother of all bubbles has inflated the cost of everything to such high levels, includes wages, that America isn’t competitive anymore.
Feel free to give me down votes, but the truth is the truth.
Right, and all that money to pay people ever rising wages wouldnt be there if it hadnt been created out of thin air by the Federal reserve governors who did it because the Uniparty Republicans and Democrats both obeyed their campaign donors who wanted that money printing, many of these donors wanting it to support bubble stocks and real estate prices and to keep people spending and borrowing to sustain the debt ponzi. To remedy this, the govt should tell people the truth so they can prepare, that we need big spending cuts to stop our decline and preserve our country, and the Fed should continue draining money from the system so asset prices like real estate can reset to a reasonable level where wages dont have to be so high for people to afford basic needs like rent.
Why are Mazda adds covering HALF the page I’m trying to read, Mish ?
I’ve clicked off several times and gone elsewhere for news – this is unacceptable.
Get an Ad Blocker
Use a different browser.
ublock origin plug in is your friend.
I use Duck Duck Go and I don’t get any ad pop ups.
“…automotive component might cross the US-Canada and US-Mexico borders as much as seven or eight times before it ends up in a finished vehicle.”
Is that efficient and cost effective?
How else are you going to get all the drugs in?
They are private companies trying to make a buck.
Superficially it seems a lot of transit costs and delays, but if you can make money cutting it out, they would.
You beat me to it…….Maybe the tariffs can redirect all of this unneccessary travel costs that add in to the price of goods
And where are the global warmers? How the -uck is this good for the environment?
There is a cost savings there too
Absolutely agree that tariffs could hurt the US auto industry. But, Trump negotiating to get a better deal for the US will not hurt the auto industry.
If you are freaking out about the impact of Trump’s tariffs just remember Trump is always negotiating. Everything is gonna be alright.
To Pay for Trump Tax Cuts, House GOP Floats Plan to Slash Benefits for the Poor and Working ClassDUH!! https://www.propublica.org/article/trump-tax-cuts-congress-republicans-plan-slash-benefits
Thanks for the link. An honest comment.
Not just cuts. But also eliminating mortgage interest deduction. That’s going to be a tax increase on nearly everyone.
Less than 10% of tax returns utilize the MID, so that definitely won’t affect “nearly everyone”.
You can make your own decision about whether it affects you enough to call your (Republican) Congressman
Serfs need to live like serfs.
Funny how all these tax cuts have increased tax collections for the federal government, even adjusted for inflation and currency changes.
You got 1 democrat talking point down, I’ll give you that.
Most tariff stories are overblown.
Economies quickly adapt. See China’s response to being locked out of importing the best chips.
If the cost of an import goes up 25%, most of the time a domestic supplier will figure out how to do it for 10% more. The impact of the tariff is more domestic employment and a 10% more expensive good, not a 25% cost rise.
Economies are dynamic, good luck figuring out which imports can be easily sourced domestically until it happens.
exactly. And are these same people complaining about the high tariffs china imposes? The E.U imposes?
So its ok for them but its always bad for America?
Going as planned hand these countries over to the Russians US aid was long a lifeline for Eastern Europe. Trump cuts are sending shockwaves through the regionhttps://apnews.com/article/eastern-europe-trump-usaid-freeze-foreign-aid-2d1ee6aa888063731cabd39e257b72b6
Was recently reading corruption in the aid programs.
You can cure that dirty feeling by buying $meliana!
No question that the tariffs don’t make any sense within the North American market. Tearing down the economy of scale that is in place will just raise prices for everyone, expecially in automotive, lumber and energy.
Will cooler heads prevail on tariffs? I don’t think so given the flunkies that Trump has assembled around him. Trump’s Potomac crash press conference was a good introduction to the kind of people serving in this administration. The new transport secretary lauded Trump’s leadership on air traffic control issues in terms that would have been familiar to a North Korean audience.
They want to keep their jobs.
Thus, Tariffs applied by the USA are for PARTS ORIGINATING FROM THE USA. We are apply tariffs to US!
The inanity of it fits the leadership. I do get a kick out of Trump but I am not mesmerized by he and his antics.
It’s tariffs all the way down. You don’t want a deficit do you? Something’s gotta cover this year’s tax cuts for the ultra wealthy!
“I suspect Trump may find a way to “postpone” these tariffs following pledges by Canada and Mexico to do better on the border.”
No doubt. The buildup this week leading to the reveal on a Saturday? Politics is entertainment, even moreso with the current administration.
“Damn the torpedoes, full steam ahead.”
Trump has painted himself into a corner. He talks tough on tariffs but if he backs down now, he’ll look like an impotent whimp. If he follows through, he will cause massive inflation and maybe crash the economy. It’s a lose-lose proposition only Trump could achieve.
December PCE came in at 0.3%, the last of the former administration’s inflation numbers.
Yep, cornered by his own actions. It is amazing to behold.
Maybe, but he’s doing what he said he would during the campaign.
Many MAGA voters would much rather “own a lib” and pay much more for their cars, I mean just look who they voted for. These are Americans’ top priorities, settling petty political scores.
Justice is what is occurring. The DOJ and FBI are corrupt, just to name a few.
Incels and other failures live for this. They are such toxic, awful people that their life wouldn’t get better even if they had billions (I know this from experience).
The victimhood/revenge cycle is the only bright point in their lives, aside from the chicken tendies mom brings down to the basement.
Their mood can easily be managed by adjusting the price of tendies.
The ramifications associated with tariffs is correctly captured in Mish’s post. But I believe that the implications are mostly known to Trump. That said, the net puts and takes associated with tariffs are not what’s driving Trump policy on the matter. He likes the revenue or at least the optics of revenue growth to the Treasury. Trump mostly does not need Congress here. He’s a one man show and can use one-off exceptions for companies and industries, down the road, as needed. He can also extract political support and/or money in return for exemptions. It’s a triple win for Trump. Countries will want to negotiate with him. Select companies and industries will want to negotiate with him, and he can show increase cash coming into the Treasury. In Trump Word, it’s a three-time winning formula!
You should listen to Lacy Hunt explain, in his recent interview with Adam Taggert on Thoughtful Money, why tariffs are not inflationary in the long run. IDK if he is correct. But he has numerous examples and his view is the exact opposite of yours.
Re: these specific tariffs. Trump is trying to force the two countries to close the border to illegals, drugs, and human trafficking. Can you say that it won’t work? I can’t say it will, but it seems like it’s worth a ST try.
Massive amounts of Fentanyl comes from Canada. Most people are not aware of that. Numerous Canadian cities (Vancouver at the top) have seen their real estate markets far outpace the US over the past decade. The reason: laundering of drug money by foreigners. The Canadian govt knows it and has done nothing.
I find your statement about the housing market in Canadian cities very hard to accept.
well there is the China CP buying up all the gold mines and bringing in tens of thousands of chinese that inflated their housing market. Didnt Canada impose or try to impose a tax for foreigners buying property a few years ago?
Fentanyl is recently in short supply, OD deaths down double digit % in 2024. He is tilting at windmills. The Fentanyl issue isn’t about Fentanyl at all it is a means to his end. He doesn’t care if a bunch of druggies die unless they are voting Trump. Seems like Canada is getting more tax revenue at the expense of dumb Americans. How is that not a winning proposition for them?
Are the people smuggling fentanyl holding a gun to people’s head and forcing them to take it? If you got rid of all the fentanyl in the universe, do you think drug addicts will stop doing drugs or will they switch to heroine, cocaine, crack, maryjane or something else? It get real old playing the endless victim. What next fentanyl is caused by DEI?
You’re worried about Canadian money laundering when most US banks have been accused of 10x worse activities in this regard?
We shut the world down over F*cki and his wuhan lab.
I live in flyover. I have no one…friends or family that died from this bioweapon.
I do have friends who have lost children due to fentanyl.
F*ck mexico & canada. 25%?? Triple it & make sure to wipe out
the drug cartels.
The Canadian Govt and US GOVT do nothing in perfect coordination. Remember, Trump’s game is simply a dance.
It is a Dance with: 1) The Democrats. 2) Foreign Leaders.
ALL SCRIPTED by the handlers.
Import tariffs go to the treasury, so they do not spark emission of extra credit/money (deficit spending). They will differentially affect prices of goods that rely on imported commodities. But they strengthen the dollar too.
On this blog, everybody should long ago have learnt that inflation/deflation is a matter of money/credit emission, not prices.
I agree. Great points. And Frank Shostak PHD over at The Epoch Times agrees with you. He is my go to guy on all things inflation and money supply.
Great post, thank you
After trillions of dollars were printed from thin air causing a big spike in inflation, Lacy Hunt is, get this, saying we have a liquidity squeeze. He doesnt seem to care if the dollar is debased to nothing.
Too cumbersome : if capacitors and other electronic components will be produced
and assembled in the US (low tech) the Keto Institute can skip on: 1, 2, 3 and 4.
It will increase employment in the US, save time and shipping cost. Decades ago, when the US was number #1 in electronic, all these parts were made in the US.
If China shut #1 F-150 cannot be sold.
All the more reason to start reshoring manufacturing.
agreed. parts shipped back and forth 6 times? Travel costs? Environmental costs? excess demand for fuel cost effect?