Tariff uncertainty imposes tax on the automotive industry

Jonathon Azzopardi, The president of auto parts maker Laval Tools can be seen clearly from his desk in Windsor, Ontario, just four miles from Detroit. This week, that view is starting to look more expensive.

On Sunday, President Donald Trump said the U.S. would begin imposing 25% tariffs on goods imported from the Canadian and Mexican border, a stunning reversal of North America's decades of free trade. Both countries threaten to retaliate with their own tariffs. Then, last-minute probation: Later on Monday, Trump said tariffs on both countries would be “suspended” when both countries promised to increase border security. The president also suggested that Canada could impose tariffs on becoming the 51st state, a suggestion that Canadians were shocked.

Azzopardi said if the 25% tariff passes through Canada’s retaliatory tariffs, coupled with Canada’s retaliatory tariffs, it would add almost unnegligible costs to the company, partly because some of its products cross the U.S. during production. The Canadian border has reached 7 times.

Even if it stops, the future is still blurry and frightening.

"Uncertainty is actually worse because we don't know what will happen," Azzopardi said.

The company’s plight proves the difficulties of many in the automotive business as the Trump administration’s scattered and threatening diplomatic approaches jeopardize complexes and expensive supply chains that create vehicles driven by Americans every day.

In one example of Laval tool, steel made in the United States comes from Pennsylvania to make components that end up being a die for auto parts, then send them back to the United States for machining, then return in Canada, and then done in Canada for making like engines Cover such a car component and send it back to the United States to add it to other components in a specific order.

According to consulting firm Alixpartners, tariffs on Canada and Mexico could affect about $225 billion in automatic related imports. One quarter of the 16 million cars sold in the United States each year come from Canada or Mexico.

Tariffs could also significantly inflate the cost of new cars to up to $6,250, according to S&P Global Mobility. Companies will have to decide at a higher price what they can bear and what will be passed on to consumers.

The tariff pause does not mean that the headache for the automotive industry is over. Analysts say manufacturers deal with uncertainty about tariffs by purchasing goods without tariffs and moving goods around the border. Companies on the other side of the border respond to the influx of orders by squeezing and paying workers, and worrying that doing the work now will mean less in the future.

Now, it's even more expensive to get these products into the U.S. quickly, as many companies are moving goods at once, and Paul Isley's auto suppliers and automakers are based on. Then, storing additional inventory incurs holding costs. In the U.S., local companies have also responded by insisting on recruitment, Isley said.