Highlights
 

•  Components crossing US–Mexico–Canada corridor face disruption
   
•  Reshoring production to US would involve multi-year lead times
   
• USTMA expects U.S. tire shipments of 340.4 million units in 2025

The U.S. auto sector is entering a phase of heightened volatility as the Trump administration moves to unwind federal incentives for electric vehicles and introduce tariffs on automotive imports. The twin policy shifts have already prompted several automakers—including Ford and GM—to delay upcoming EV launches, injecting uncertainty into a market already facing margin compression and softening demand forecasts.

Analysts expect the tariffs to add several thousand dollars to the production cost of each vehicle, potentially denting consumer demand and triggering cutbacks in plant output in the US. The North American auto supply chain, a tightly integrated cross-border network, is particularly vulnerable. Components frequently cross the U.S.–Mexico–Canada corridor multiple times before final assembly, and any disruption could cascade across both upstream suppliers and downstream buyers.

Cross-Border Auto Trade at Risk

General Motors, which relies heavily on Mexican production for both its high-margin pickup trucks and affordable EVs, imported nearly 750,000 vehicles from Canada and Mexico in 2024. Ford transported 196,000 units from Mexico into North America in H1 2024, 90% of which were destined for U.S. dealerships. Volkswagen and Toyota also maintain significant North American production footprints outside the U.S., with roughly two-thirds of VW’s U.S. sales originating in Mexico, and core Toyota models like the RAV4 and Corolla assembled in Canada and Mexico.

Relocating production back to the U.S. is being discussed across boardrooms to mitigate tariff impact, but any meaningful reshoring would involve multi-year lead times and significant capital deployment. The overall impact on domestic auto and tire production remains uncertain, with potential benefits tempered by concerns over increased costs and market disruptions. For now, producers may maintain the existing offshore network at a lesser load while absorbing increased tariff-related costs or tempering downstream through price adjustments. While Stellantis is temporarily closing its two plants in Canada, General Motors is increasing truck output at its Indiana plant - in contrasting moves. JLR and Volkswagen are halting imports to the US.

Impact on U.S. labor and auto components market

US Department of Labor estimates that roughly one million Americans are employed in vehicle assembly and parts manufacturing, with another 1.9 million tied to retail and dealership operations. Disruptions in cross-border parts flows could ripple into domestic labor markets. According to Commerce Department data, U.S. auto parts exports totaled $35.8 billion to Mexico and $28.4 billion to Canada last year—primarily to support vehicle assembly. Any tariff-induced bottleneck could compel American exporters to scale back output, placing US jobs at risk.

Bank of America has flagged that bringing parts manufacturing back to the U.S. at scale is “essentially impossible,” citing high labor costs and a persistent skills deficit. Moreover, many of the vehicles produced in Mexico fall into the low-to-mid-price segment, which may become unviable under significantly higher U.S. wage structures.

Tariff measures target broader trade realignment

The White House, in its April 2 announcement of a national economic emergency, pointed to value-added tax asymmetries as a structural disadvantage. U.S. companies currently pay over $200 billion annually in VAT to foreign governments, while exporters to the U.S. face no comparable domestic charge. U.S. companies pay the tax at the European border, while European companies don’t pay tax to the United States on the income from their exports to the U.S.

The White House also said non-tariff barriers in key Asian markets—especially Japan and Korea—further limit auto export competitiveness. These include regulatory opacity, duplicative testing protocols, and resistance to U.S. technical standards.

Cumulatively, these constraints result in an estimated $13.5 billion in foregone export opportunities annually. The U.S. trade deficit with Korea alone has more than tripled between 2019 and 2024, prompting policymakers to act.

Source: USTMA and Helixtap Analytics

Macroeconomic rationale and market outlook

The US administration’s latest economic projections suggest that a global 10% tariff could boost U.S. GDP by $728 billion, create 2.8 million jobs, and raise real household incomes by 5.7%. Yet the benefits remain largely theoretical at this stage, while the risks—supply chain fragmentation, production slowdowns, and demand-side drag—are immediate and quantifiable. An auto advisory firm has already forecast that tariffs would cause close to two million fewer auto sales in the US in 2025.

Analysts say in segments such as auto-grade steel, auto parts including tires, rare earth (for EV batteries), and plastics, the cost curve is expected to steepen if cross-border flows are interrupted in the form of tariffs, impacting margins as well.

With supply chains already operating on lean inventory models, even minor tariff-induced delays could force automakers to idle production lines, triggering ripple effects through the supplier network. Automakers, traders, and parts suppliers have to brace for volatility across both input prices and finished vehicle demand in 2025.

Tariff war clouds USTMA projection of tire shipments

Meanwhile, in March 2025, the U.S. Tire Manufacturers Association (USTMA) projected total U.S. tire shipments of 340.4 million units in 2025 (1), compared to a record 337.3 million units in 2024 and 332.7 million units in 2019. However, it is to be seen how the trade and tariff war impacts this projection.

Experts already project weak OTR demand in the US, with construction projects being slowed down owing to higher costs for construction materials and equipment, and tariffs are set to worsen the scene. The residential construction sector remains one of the most significant drivers of U.S. economic activity in the OTR segment and high interest rates have impeded residential projects while banks are withdrawing from commercial real estate lending.

The USTMA said that compared with 2024, Original Equipment (OE) shipments for passenger, light truck, and truck tires are expected to change by 1.6%, 1.2%, and 2.7%, respectively, with a total increase of 0.9 million units, in 2025.

Replacement passenger, light truck and truck tire shipments are also projected to change by 0.8%, 1.0%, and 0.8% respectively, with a total increase of 2.2 million units. The change with 2019 for OE passenger, light truck, and truck tires is -5.2%, 16%, and -10.6%, respectively, while for replacement passenger, light truck, and truck tires, it is .3%, 14%, and 24.6%, respectively.

The strongest growth is projected in the OE truck tire market, with units projected to grow 2.7% in 2025. The latest numbers show that 2024 tire shipments fell short of the USTMA’s early December forecast. At that time, the association projected 338.9 million units for the year, but the final total came in at 337.3 million.

According to Tire Industry Research, the United States is structurally dependent on tire imports. Around two-thirds of all tires consumed in the United States are imported.  Most of the domestic capacity for tire manufacturing is dedicated to OE contracts with vehicle makers. The replacement market is, therefore, even more exposed to imports.

[1] USTMA February 2025 Forecast | USTMA