Tariffs Could Wreck the US Auto Industry. Here’s How

March 4 is when President Donald Trump pledged to levy tariffs of 25 percent on goods imported to the United States from Canada and Mexico. That’s a flat 25 percent on everything crossing the border. Every time something crosses into the US, it will face the fee. And with the US auto industry tied into a complex North American supply chain that has existed in various forms for 100 years, the fees will quickly add up.

We’ve already heard Ford CEO Jim Farley warn of job losses and financial headaches if prolonged tariffs at 25 percent were maintained. But a recent report from The Wall Street Journal helps put all of this in perspective. It doesn’t just affect entire vehicles like the Ford Maverick or Chevrolet Silverado, both of which are built in Mexico (some Silverados are also built in the US and Canada). The various components and raw materials used to make them are also subject to higher costs.

One example is a simple piston for an engine. The scenario presented by the report starts with raw aluminum sent from the US to Canada, where it’s cast. The rough cast then goes to Mexico where it’s refined and finished, at which point it goes back to the US where it’s assembled with rings and a connecting rod, and then installed into an engine. That engine then crosses the border back to Canada where it’s added to the vehicle, and once that vehicle rolls off the assembly line, it comes back to the States where it’s sold.

That’s six border crossings total, three of which would be subjected to a 25 percent tariff. And if Canada or Mexico decide to respond with retaliatory tariffs, that would add even more cost. According to The Wall Street Journal, Mexico accounts for 40.4 percent of all auto parts imported into the US. Canada accounts for 10.3 percent.

The report doesn’t specify which vehicle that hypothetical piston belongs to, but it could be one of the most recognized American vehicles of them all—the Chevrolet Silverado. General Motors builds its decades-old Chevy pickup at multiple locations, including factories in Canada and Mexico. In fact, The Financial Times states just over half of all Silverados built last year (including half-ton, three-quarter-ton, and one-ton models) came from either Canada or Mexico. As for the US-built trucks, they still need plenty of parts and many of those, in some form or another, come from abroad.

Some estimates say that prolonged tariffs with Canada and Mexico could raise vehicle prices by over $10,000. The ripple effect could also see suppliers curtail production, leading to widespread layoffs throughout the entire automotive manufacturing sector as companies try to figure out how to handle the added costs. Passing it onto consumers would likely kill sales. Eating the costs would kill profits.

Trump claims the tariffs are in response to  “the extraordinary threat posed by illegal aliens and drugs,” according to WhiteHouse.gov. There’s also a push to bring more manufacturing back to the US. Considering the piston scenario with multiple border crossings before going on sale in the US market, one might make an argument for a simpler, more localized process. But it’s not easy to undo decades of North American trade without some consequences. And the quicker the process, the more severe the consequences.

“There’s no question that tariffs at the 25 percent level with Canada and Mexico, if they’re protracted, would have a huge impact on our industry, with billions of dollars of industry profit wiped out, and adverse effects on US jobs as well as the entire value system in our industry,” said Ford CEO Jim Farley. “Tariffs would also mean higher prices for customers.”