Experts: Trade tariffs remain threat to US auto industry

• The US auto industry remains concerned about tariffs this year, experts said Wednesday in Michigan 
• While some tariffs are paused, additional ones from other nations could be imminent
• Uncertainty leaves the industry, Michigan largest, fearful that it will lose market share and profitability

DETROIT — Michigan’s dominant business is awash in uncertainty, experts said Wednesday, as the auto industry remains braced for fallout from threatened tariffs. 

For the US auto industry to hold its market share and remain viable amid tariff threats, “stability is what's needed,” said Stephanie Brinley, associate director of research and analysis for S&P Global, an analytic firm. “Some certainty, knowing what's going to happen.”

Questions are piling up over what nations will add taxes to imports and exports that affect the global industry, Brinley and other experts said at the 31st Annual Automotive Insights Symposium organized by the Detroit office of the Chicago branch of the Federal Reserve.

In Michigan, the industry represents $304 billion in annual production and it employs an estimated 20% of the state’s workers.

The questions about tariffs mean the nation’s automakers may face decisions this year that could raise prices, reduce workers and halt investments. This comes as auto sales still lag pre-pandemic years. In 2024, auto sales climbed to 92% of 2019’s 17 million-plus U.S. auto sales.

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While many expected increased tariffs after the November election of President Donald Trump, the whirlwind actions the president has taken in the last week — initiating tariffs on Canada, Mexico and China and then quickly postponing the Canada and Mexico tariffs — along with retaliatory moves by China and threatened retaliation by Canada make  “this is one of the most fluid and dynamic situations the auto industry has faced,” according to S&P.

On Monday, Trump announced that new tariffs of 25% on items entering the US from Mexico and Canada would be suspended for 30 days while both countries respond to his demands for border controls. Then on Tuesday, China announced its own retaliatory tariffs, affecting energy and autos. 

When it comes to the 30-day pause on Mexican and Canadian tariffs, “the delay … does not remove the ultimate threat,” S&P says.

Further, Brinley said, “our expectation is that more tariffs are coming for other markets that are outside of Canada and Mexico.”

Brinley outlined three potential tariff scenarios, each impacting national auto production:

• A quick resolution, possibly the most likely scenario, could end the tariffs in up to two weeks. This would mean a short shutdown in the production of many models due to supply issues or border gridlock, but without lasting impact.
• Extended disruption, which could extend for about two months. Vehicles with high exposure to tariffs would pause or cease production, with automakers making it up within a year or so.
• “Tariff Winter,” so-called because the tariffs are fully integrated into production, possibly cutting US auto manufacturing by 10% for several years. 

The “tariff winter,” which S&P says appears to be the least likely scenario, could also lead to a long-term decline in American competitiveness.

All of the scenarios mean “agility is going to be the problem for automakers to work through right now,” Brinley said. 

For example, she said, “changing the sourcing footprint can't be done overnight.”

Further, Brinley added, “it's not clear how and when that tariff might be lifted. There's … no metric.”

In fact, Ford Motor Co. CEO Jim Farley said in an interview on CNBC on Wednesday that U.S. trade policy resulting in more tariffs could result in “billions of dollars in losses.”

The parts effect

The auto industry depends on global parts production.

“The global sourcing environment is the way it is because it works,” Brinley said. “(Parts) built in Mexico, Canada or Japan or China or wherever,  it's where it makes the most economic sense.”

And the consumer faces higher prices under tariffs, she added.

“If (automakers) do decide to build a new plant in the United States to be able to get around the tariff,” she said, ”it's going to be more expensive.

While automakers are confronting the uncertainty, the situation is accentuated for their suppliers, said Mike Jackson, executive director of strategy and research for the national Motor & Equipment Manufacturers Association. 

Michigan has more than 2,200 automotive supplier and technology center facilities, according to data from MichAuto at the Detroit Regional Chamber. 

“The industry is fragile,” Jackson said Wednesday. 

He underscored that while “one could argue that the intent (of tariffs) would be to increase local sourcing  in the US, but the reality is that … can't happen instantaneously.”

Auto production, Jackson said, is “an asset-heavy and long-lead (time) industry, and so this makes it incredibly challenging for suppliers to navigate in light of the amount of volatility that we've seen,” he said. As examples, he mentioned COVID-19 parts shortages and electric vehicle investments that exceeded the pace of sales. 

A recent MEMA survey of members, Jackson said, resulted in the 11th straight month of building pessimism. 

Meanwhile, automakers are used to broad economic swings pulling their $1 trillion industry into highs and lows, the speakers said Wednesday.

Unlike other risky periods, this time the economy is solid, said Kristin Dziczek, policy advisor for the Chicago Fed. 

Those circumstances in turn raise questions for consumers and policymakers about potential repercussions on the broader economy. 

“It sure feels to me like we're about to step onto a roller coaster with many twists and turns ahead,” Dziczek said.