I. Background
In the early hours of Thursday Beijing time, U.S. President Trump announced in the Oval Office that the U.S. would impose tariffs of up to 25% on all automobiles not manufactured domestically, as well as on specific auto parts. The tariffs will take effect on April 2 and begin collection the following day. These new tariffs will be levied on top of existing duties and are expected to generate an additional $100 billion in annual revenue for the U.S.
II. Direct Impact on the Automotive Supply Chain
1. Import Dependence & Price Effects
In 2024, the U.S. imported approximately $240 billion worth of automobiles, accounting for 48% of total new vehicle sales. The main source countries were from Mexico, Canada and Japan, with the amount of $79 billion, $31 billion and $23 billion respectively.
Sources of US automobile imports and price increase forecast
| Country | Import value in 2024 (in billions of US dollars) |
Main brands | Expected price increase (in US dollars) |
| Mexico | 790 | GM, Ford | 4,000-6,000 |
| Canada | 310 | Strantis | 3,000-5,000 |
| Japan | 230 | Toyota, Honda | 6,000-8,000 |
| Germany | 150 | Volkswagen, BMW | 8,000-12,000 |
2. Supply Chain & Production Adjustments
The integrated North American supply chain may face disruption.General Motors relies on Mexico and Canada for 37% of its production capacity Stellantis depends on 45% of the output. As a result, the short-term production could drop by up to 30% due to tariff-induced cost pressures. In addition, new factory construction requires 3-5 years, leaving manufacturers exposed to elevated costs through at least 2026.
III. Impact on China's Electric Vehicle (EV) Exports
1. Limited Direct Exposure
In 2024, China exported 116,000 vehicles to the U.S., accounting for only 1.8% of China's total auto exports and 0.4% of domestic auto sales. Thus, this indicates minimal direct trade risk exposure for Chinese automakers in the U.S. market.
2. Transshipment Vulnerability via Mexico
However, according to the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, 445,000 China-made vehicles accounting for 6.9% of total exports entered the U.S. via Mexico in 2024. If the U.S. extends tariffs to transshipped goods, this may lead to a few questions.
1) Eroded Price Competitiveness
A 25% tariff would increase end-user prices by 18-22% (Deloitte estimate), significantly dampening demand.
2) Sunk Investment Costs
Some projects may face downward ROI revisions due to potential tariff barriers. Such as BYD's Monterrey plant with a planned capacity of 150,000 units per year and Chery's Coahuila production base.
3) Supply Chain Relocation Pressure
Over 50 Chinese auto parts suppliers would need to restructure their North American supply networks, incurring additional costs, like Top Group's Saltillo plant and Sanhua Intelligent Controls' Nuevo León base.
Therefore, companies may implement export market diversification strategies and shift towards the Mercosur and EU regions with 2 years. However, it is also subject to barriers to entry in the target market and requires the restructuring of the product certification system, such as the UN ECE standard, incremental logistics costs, with Atlantic shipping costs 40-60% higher than Pacific shipping costs; The channel construction cycle requires an 18 month introduction period for the establishment of a mature market dealer network. In the short term, it may cause a decrease in sales and revenue.
Edited by Cassie Li, lixiangying@mysteel.com
