Auto Tariffs Would Slam the Brakes on the Industry and Drive Inflation Higher

This week, we dive into North America’s auto industry with University of Toronto Professor Dimitry Anastakis, an industry expert and author of Dream Car.

As Professor Anastakis explains, it took decades to build an integrated North American automotive supply chain. Today, automakers rely on a just-in-time inventory system, meaning parts arrive precisely when needed. Before a car hits the lot, its components have often crossed North America’s borders multiple times.

Tariffs would throw a wrench into that system, causing delays, shortages, and higher costs for consumers.

No wonder Ford CEO Jim Farley says tariffs would “blow a hole” in the North American auto industry.

Think back to the 2021 semiconductor shortage—because of one missing part, car prices soared. In fact, rising auto prices accounted for 1.5 percentage points of the total 7.0% inflation the U.S. experienced that year.

Within a week of tariffs being implemented, we expect major auto manufacturers to start scrambling. Incentives would dry up, supply chains would experience shortages, and prices would spike.

So how likely are we to see auto tariffs?

Initially set for February 4, they were delayed a month and then postponed another 30 days after Donald spoke with auto executives, including GM’s Mary Barra, Ford’s Jim Farley, and Stellantis Chair John Elkann.

Donald claims that GM plans to invest $60 billion in U.S. manufacturing—an eyebrow-raising figure, considering that’s more than GM’s entire market cap. Even if automakers wanted to shift production to the U.S., CNBC reports it would take a minimum 3.5 to 4 years and $4 billion just to build a single new plant.

At the end of the day, this looks more like political maneuvering to renegotiate the USMCA deal than a real policy shift. But if tariffs do take effect, American consumers will feel the pain through higher prices and fewer options. For that reason, we expect the auto industry to be exempt.

Nevertheless, the question isn’t whether the auto industry can adapt—it’s whether it should even have to.

-written by Jeff Pollock