The U.S.-Canada trade war is creating a headache for auto-parts makers
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war → create → makers
The U.S. and Canadian auto industries have been tightly woven together for decades.
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industries → weave → decades
But the latest tariff flareup between the two countries may complicate that.
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flareup → complicate → that
Think of that sticker on the windows of new cars breaking down how much of the vehicle's content comes from the U.S. and Canada.
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much → think → U.S.
From a manufacturing point of view, content from both places has long been considered deeply intertwined.
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content → consider → places
But the U.S. and Canada failed to reach a new trade deal this summer, and the trade war between them has escalated quickly.
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war → fail → them
In August, the U.S. enacted new tariffs on aluminum and steel, and President Trump has also threatened 50% tariffs on Canadian vehicles, auto parts and steel effective on Jan. 1.
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Trump → enact → Jan.
On Tuesday, Canada enacted retaliatory tariffs on a variety of U.S. goods — including on American steel and aluminum.
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Canada → enact → steel
All of this puts the auto manufacturing industry in a jam.
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All → put → jam
For major U.S. carmakers, analysts say, the tariffs introduce uncertainty as companies determine whether to adjust their supply chains in the long run, or to absorb new costs in the short term.
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companies → say → term
But for the smaller businesses that supply those big companies with thousands of parts — think bolts, or the steel rods for steering wheels — the tariffs could spell bigger, more expensive trouble.
"
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tariffs → supply → trouble
It makes planning for things very difficult," says Dan Hearsch, global co-leader of automotive and industrial at the consulting firm AlixPartners.
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leader → make → firm
For these companies, he says, the new tariffs follow years of chaos — the aftermath of Covid supply chain shortages, the start-and-stop ramp up to making more electric vehicles, the need to grapple with pre-existing tariffs.
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tariffs → say → tariffs
"It's one more thing, on top of the one more thing, that was on top of the one more thing, that was on top of the one more thing," Hearsch says.
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Hearsch → say → thing
The U.S. and Canada started weaving their auto supply chains together in 1965, when they signed a pact with a goal of consolidating their auto industries and expanding their combined market.
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they → weave → market
The pact removed duties on auto products or equipment crossing the border when they are made of at least 50% of U.S. or Canadian content.
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they → remove → content
Their trade relationship deepened with the 1994 North American Free Trade Agreement, which included Mexico and removed many duties between the three countries, as long as they contained a certain proportion of North American parts.
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they → deepen → parts
The 2020 United States Mexico Canada Agreement, which revised that deal, included a requirement that auto content be 75% North American to be able to pass borders without any tariff.
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content → revise → tariff
For the auto industry, the free flow of many goods meant that components could be assembled in plants in each country, and ultimately combined in another.
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components → mean → another
The auto supply chain grew into a single ecosystem.
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chain → grow → ecosystem
"I've often described it like an omelet" with ingredients from all three countries, says Jim Jarrell, president and CEO of Linamar Corporation, a Canadian manufacturing company that handles both auto and agricultural products.
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that → describe → products
"Think about a casting that starts in Mexico and that gets sent into the U.S. to get processed.
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that → think → U.S.
That part then jumps over to Canada to get further processed," says Jarrell, referring to a molded piece of metal.
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Jarrell → jump → metal
"Then we ship it back into the U.S. sub-assembly, to get it finished and assembled," Jarrell says.
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Jarrell → ship → assembly
"And that story is, quite frankly, not unusual," he continues.
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he → continue → ?
"That is actually how the industry works."
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industry → work → ?
Linamar Corporation has a roughly equal number of plants in the U.S. and in Canada, but they also have plants in Mexico and in Asia, Jarrell says.
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Jarrell → have → Asia
And each of them make slightly different things, Jarrell says, making it potentially difficult to alter those supply chains in response to new tariffs — or the threat of additional tariffs in January.
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it → make → January
To alter where or how parts are made would mean re-evaluating entire supply chains, Jarrell says.
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Jarrell → alter → chains
Aisin Corporation, one of the world's largest transmission makers and suppliers, is based in Japan, but does about 20% of its business in North America, and often moves materials back and forth as their supply chain warrants it.
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chain → base → it
" We've always looked at North America as totally North America, not Canada-specific or U.S.- specific," says Chuck Sanders, the executive vice president for the company's North American division.
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Sanders → look → division
" When there's rapid changes or new tariffs that are introduced suddenly," he continues, "that kind of creates chaos on the business."
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that → ' → business
Shifting production means moving jobs around.
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Shifting → shift → jobs
That's a problem both the company and its workers would like to avoid.
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company → like → ?
"We want to continue the business so they have a long-term future with us," Sanders says.
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Sanders → want → us
The effect on the auto-part supply chain
Cars are made with tons — literal tons — of steel and aluminum, and with thousands of parts.
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Cars → make → parts
It depends on when you stop counting.
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you → depend → ?
Then there are sensors, an airbag, an instrument cluster with "lots of dials and things that move," Hearsch from AlixPartners says.
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Hearsch → be → AlixPartners
In that steering wheel system, he says, "There's probably 50 to 100 different parts coming from all over the world.
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he → say → world
Manufacturers occupy different tiers within the automotive supply chain.
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Manufacturers → occupy → chain
…and 14 more, not listed.