Martin Balaam, CEO and Founder of Pimberly, a digital commerce specialist, outlines the impacts that US trade tariffs – especially those imposed on automotive vehicle and component parts imported from neighbouring Mexico and Canada – could have on the US auto sector.
JA: Although they have been postponed for USMCA-compliant auto trade until early April, what would the short-term impact of 25% US import tariffs on shipments from Canada and Mexico be—in terms of trade flows and also new vehicle prices facing US consumers?
MB: If they apply, these 25% tariffs on imports from Canada and Mexico can be expected to drastically disrupt trade flows. Given the deeply integrated nature of North American automotive supply chains, these tariffs could significantly increase the cost of vehicles due to the high volume of parts sourced from these countries. Consequently, US consumers will likely see noticeable surges in new vehicle prices.
Beyond new vehicle costs, the impact will ripple through the broader automotive market. The cost of vehicle repairs will rise as the price of imported parts climbs. In turn, we’ll see much higher vehicle insurance premiums, given that repair costs are a major factor in determining rates.
Auto parts distributors – even if they work on stockpiling before April – would face pressure on cash, as they must fund an extra 25% in costs for parts. This financial strain will cascade down the supply chain, forcing automotive companies to stretch business-to-business trade credit to cover the sudden spike in costs. Some auto repair centres operating at or near their credit limits may even be pushed into cash-on-order arrangements, which could disrupt service availability and further exacerbate repair costs for consumers.
JA: What about the longer-term impacts? (e.g., producing more in the U.S.—how quickly can OEMs or part suppliers change manufacturing plans, manage inventory, etc.)
MB: Over the longer term, while there might be a push to have the majority of production happen within the US, the shift won’t be swift or straightforward. Establishing new manufacturing facilities or reconfiguring existing ones requires significant time and investment. Additionally, higher labour costs in the US would offset some of the benefits of local production – which manufacturers need to take into account as they plan ahead. Therefore, any substantial realignment of manufacturing strategies would likely unfold over several years.
JA: What can companies do to mitigate the effects of this kind of supply chain disruption?
MB: To navigate these challenges, companies should enhance supply chain visibility and flexibility. Investing in digital tools, such as PIM (Product Information Management) or OMS (Order Management System), that provide real-time data can aid in anticipating and responding to disruptions. Diversifying supplier bases and exploring alternative (and domestic) sourcing strategies can also help mitigate risks associated with such tariffs.
JA: Do you think the Trump administration’s strategy is the right way to make the US auto industry more competitive internationally, or is there a danger of a trade war negatively impacting US firms, too?
MB: In my view, while the intention of bolstering domestic manufacturing is understandable, imposing steep tariffs as the President has proposed, carries the risk of unintended consequences. There’s a genuine concern that such measures could escalate into broader trade conflicts, potentially harming US businesses and, in turn, everyday consumers. A more collaborative approach, focusing on innovation, might yield better outcomes for the US auto industry on the global stage.
