Trump's Renewed Tariff Threats Spur Auto Supplier Shift to North American Production

Trump's Renewed Tariff Threats Spur Auto Supplier Shift to North American ProductionNews on January 10th reveals that incoming President Trump's pledge to impose high tariffs on imported goods is forcing global automotive industry suppliers to reassess their global production footprints, accelerating the shift of production capacity to the U.S

Trump's Renewed Tariff Threats Spur Auto Supplier Shift to North American Production

News on January 10th reveals that incoming President Trump's pledge to impose high tariffs on imported goods is forcing global automotive industry suppliers to reassess their global production footprints, accelerating the shift of production capacity to the U.S. or closer proximity. This move isn't sudden; it's the culmination of years of protectionist policies impacting the auto industry, including tariffs and threats implemented during Trump's first term, and further tariffs and the Inflation Reduction Act under the Biden administration. These policies, particularly those targeting Chinasuch as the Biden administration's proposed ban on vehicles using Chinese software and hardware from being sold in the U.S.have significantly impacted the global automotive supply chain. Trump's more aggressive pledges, including a blanket 10% tariff on all imports and tariffs as high as 60% on Chinese goods, further exacerbate this trend. Particularly noteworthy is Trump's late-November statement that upon his January 20th inauguration, he would impose a 25% tariff on imports from Canada and Mexico.

Such high tariffs are virtually impossible to fully pass on to consumers, rendering many auto parts produced in low-cost markets unprofitable, potentially eliminating Chinese goods almost entirely from the U.S. market. Paul Thomas, president of Bosch North America, the world's largest auto parts supplier, commented, "Anyone can do the math. If the tariffs are 10%, 20% or even 60% you have to ask, 'Okay, what makes sense, what actions do we need to take?' We actually started making some adjustments before he [Trump] even took office."

Thomas further elaborated on Bosch's strategy during the CES tech conference. He cited an example where Bosch might produce a certain electronic control unit in a market like Malaysia, but now, "we're looking at Mexico or Brazil we already have operations in those areas." He added that Bosch would await January 20th to make "major decisions" based on the actual situation. Other suppliers and automakers are adopting a similar wait-and-see approach.

During his first term, Trump repeatedly used the threat of tariffs against specific countries or even individual automakers to pressure them into increasing U.S. production. A prime example is early 2017, when Toyota announced plans to produce Corolla sedans in Mexico for U.S. consumers. Trump publicly declared on X (formerly Twitter): "NO WAY! Build plant in U.S. or pay big border tax!" Within a year, Toyota announced a $1.6 billion joint venture plant in Alabama with Mazda, a move Trump later declared a "win."

However, auto supplier challenges extend beyond tariffs. Rising labor costs, worker shortages, and slowing growth in the electric vehicle (EV) sector present significant pressures. Leonard LaRocca, U.S. automotive leader at KPMG, notes that with EV demand potentially slowing this year, tariffs could further amplify supplier concerns. "They have a lot on their plate, so they're tightening their belts."

It's noteworthy that during the pandemic, major suppliers already began localizing production to counter U.S. protectionism and massive supply chain disruptions, mitigating risks of parts shortages or high tariffs. The Biden administration's Inflation Reduction Act further accelerated this, using incentives rather than penalties to encourage significant investment in the U.S. market from auto suppliers, including companies like Dowlais, and contracts with automakers seeking EV subsidies. However, the incoming Trump administration's plan to repeal parts of this act will undoubtedly impact supplier decisions.

Nikolai Setzer, CEO of German supplier Continental, stated that for years, the company has achieved more localized production in each region to serve nearby customers, resulting in Continental being "less affected by tariffs" than other auto suppliers or competitors. But Continental is discussing with North American suppliers whether locally sourced alternatives exist to circumvent tariffs. "Whenever we can further localize, and it makes sense, we will do so."

Honda, with approximately 200,000 annual production capacity in Mexico, exports 80% to the U.S. market. In a CES roundtable, Honda Executive Vice President Seiji Nohara stated that depending on tariff levels, "we might have to consider changing our production location from Mexico to Japan, or from Mexico to somewhere else." He added, "We haven't determined what measures we will take ultimately, but we are studying feasible options."

The possibility of another round of high tariffs on Chinese goods further compels auto suppliers to seek alternative sources. Panasonic Energy, which supplies EV batteries to Tesla, has already begun shifting more of its supply chain to North America, including supply agreements with synthetic graphite anode material producer Novonix and Canadian natural graphite producer Nouveau Monde Graphite. But Panasonic Energy North America President Allan Swan says the upcoming Trump administration is accelerating plans to eliminate all Chinese materials from U.S.-made batteries. Swan stated that the current proportion of Chinese materials in the supply chain is small but the goal is "to diversify the supply chain." "That's the top priority," he added.

The impact of Trump's tariff policies on the global automotive supply chain is profound and complex, involving not only production costs and market access but also geopolitical considerations and international trade rules. Suppliers' responses reflect the flexible adjustments businesses make to protect their interests in an uncertain environment, foreshadowing potential major shifts in the global automotive landscape. This isn't just a numbers game about tariffs; it's about globalization, supply chain resilience, and the strategic reshaping of the future of automotive manufacturing.