(NewsNation) — President Trump’s 25 percent tariff on imported cars is expected to raise prices for consumers and carmakers, but it could also hurt smaller companies in the vast auto supply chain.
That’s because Trump’s import tax will also apply to “key automobile parts,” including engines, transmissions, powertrain parts and electrical components, according to the White House. Other parts may be added “if necessary.”
While the U.S. auto industry is often associated with legacy brands like Ford and General Motors (GM), its network of parts suppliers is far broader.
Vehicle suppliers provide 4.8 million jobs, making it the largest manufacturing sector in the U.S., according to the Motor & Equipment Manufacturers Association (MEMA), the trade group that represents suppliers.
Trump has said his tariffs are aimed at bringing jobs back to the U.S., but experts worry they will have the opposite effect.
“[Automakers] will demand lower prices from these parts suppliers who won’t be able to comply, so it’s a recipe for lowering employment in the auto industry,” John Taylor, an associate professor of supply chain management at Wayne State University in Detroit, said.
The other concern is that countries retaliate with tariffs of their own, which hurts U.S. exporters, explained Jason Miller, a supply chain management professor at Michigan State University.
“We export a tremendous amount of auto parts to Mexico and Canada,” Miller said.
The president’s proclamation says the tariffs on vehicles will take effect on April 3, while the tariffs on parts will go into effect no later than May 3.
How does the auto supply chain work?
The average car has about 30,000 parts, including everything from the engine block and transmission to tiny nuts and bolts.
Major automakers only produce a fraction of those parts on their own. Most car components come from an expansive global network of smaller, specialized suppliers that often rely on each other. Those suppliers are classified into tiers.
A Tier 1 supplier like Indiana-based Cummins provides engines and powertrain systems directly to automakers. On the other hand, Tier 2 suppliers operate earlier in the supply chain and provide components and materials to Tier 1 companies.
The scale of the network is massive. Each automaker has thousands of Tier 1 suppliers, and each of those suppliers has hundreds, if not thousands, of their own suppliers, Miller said.
Tariffs on parts and materials like steel and aluminum increase costs at every stage of the supply chain.
Where are cars built?
Once automakers have all the necessary components, those parts get assembled into a finished vehicle. Much of that is currently done in Mexico, which has become a major manufacturing hub due to its lower labor costs and proximity to the U.S. The level of reliance varies by carmaker.
Almost 30 percent of new GM vehicles sold in the U.S. in the first two months of 2025 were built in Mexico, according to Edmunds. The same goes for nearly one in five new Ford vehicles sold in the U.S. over that period.
Trump wants more cars made in the United States, but tariffs on parts will raise the cost of domestic manufacturing, complicating the calculation for automakers considering a switch. Those who already build cars in the U.S. will also feel the pinch.
“If you’re Mercedes Benz with your plant in Alabama, even though you’re doing domestic assembly, your imported parts from Germany are going to be more expensive here in a few months,” Miller said.
U.S.-sold Teslas, which are already built domestically, include about 20 percent parts and components from Mexico, according to government data.
Another factor to consider is that tariffs are paid by importers (U.S. companies) when goods enter the country, but a single car part can cross the border multiple times before it ends up in a finished vehicle. So, depending on how Trump structures the tax, automakers could potentially face a stacking of tariffs.
Will automakers shift manufacturing to the US?
Trump says his tariffs will bring auto jobs back to the U.S., but that’s not guaranteed. Even if some jobs eventually return, it could take several years.
“The idea that all of a sudden the automakers are going to just completely rearrange their networks is completely unrealistic,” Miller said.
The president’s on-again, off-again strategy has only made it harder for automakers and auto parts suppliers to come up with a long-term plan.
Uncertainty generally isn’t a good formula for spurring major investment. If companies don’t expect the tariffs to last, they’re less likely to make decisions that could have implications for years to come.
And even if more car factories were built in the U.S., Taylor noted that they would be “highly automated.”
“Even the trucks running around the yard of a plant or a distribution center will be autonomous,” he said.
Studies suggest that tariffs do more harm than good when it comes to employment because they protect jobs in one sector at the expense of jobs in other sectors. Part of that is because countries typically retaliate with tariffs of their own, which hurt U.S. exporters.
A 2024 paper by a group of top economists looked at Trump’s 2018 tariffs and found that “import tariffs on foreign goods neither raised nor lowered US employment in newly-protected sectors.” However, retaliatory tariffs had “clear negative impacts,” primarily in agriculture.
What does this mean for consumers?
If the new auto tariffs go into effect, Americans can expect higher car prices, potentially thousands of dollars more, according to some estimates.
But the pain wouldn’t stop there.
“Many vehicle parts are sourced globally, which would increase repair costs for car owners,” Jessica Caldwell, head of insights at Edmunds, said.
In turn, higher repair costs would push up insurance premiums since any accidents involving new parts would be more expensive.
Consumers could also be left with fewer affordable options if automakers decide some cars aren’t worth selling in the U.S.
“This will be a major negative from a product variety standpoint,” Miller said.
Nearly half of all the affordable vehicles sold in the U.S. are dependent on Mexico and Canada, according to Cox Automotive.
The president’s auto tariffs come at a bad time for American consumers, who already owe a record $1.66 trillion in auto loan debt. Car loans recently surpassed student loans as the second-largest consumer debt category in the U.S.
New car shoppers are already taking out larger loans than ever, and last quarter, nearly one in five committed to a monthly payment of $1,000 or more, per Edmunds data.
Now, Americans are falling behind on their car payments at the highest rate in years.
Cox Automotive chief economist Jonathan Smoke didn’t mince words on a call with reporters Wednesday.
“Lower production, tighter supply and higher prices are around the corner,” he said.