Investing.com — The potential elimination of the USMCA free trade agreement could significantly affect the North American auto industry, with the “Detroit 3” automakers—General Motors Company (NYSE: ), Ford (NYSE: ) and Stellantis NV (NYSE 🙂 — facing the biggest challenges, according to Bernstein.
In a report released Saturday, Bernstein highlighted the key role that Mexico and Canada play in the auto industry’s supply chain. Over 30% of vehicles sold in the US come from these two countries, with Mexico making the largest contribution.
Moreover, approximately 20% of the value of vehicles assembled in the US depends on imported parts. Ending free trade status would not only disrupt supply chains, but also result in high tariff costs, especially for automakers that rely on Mexican production.
Bernstein’s analysis finds that Detroit automakers are particularly vulnerable because of their heavy dependence on Mexican manufacturing.
“Given its high exposure to manufacturing in Mexico and low exposure to other international markets unaffected by the US tariff change, Detroit 3 would be among the most affected OEMs,” analysts Daniel Roeska and Harry Martin said in a note.
GM, for example, would see its margin decline by 2.6 percentage points in revenue, making it the hardest-hit automaker under this scenario.
Ford and Stellantis would face significant margin pressures, while automakers with a diverse production base, such as European and Asian brands, are less exposed.
Last month, President-elect Donald Trump vowed to impose significant tariffs on Canada, Mexico and China, signaling a shift toward an aggressive trade policy that could stoke tensions with the U.S.’s biggest trading partners.
Trump has announced plans for 25 percent tariffs on imports from Canada and Mexico, linking the measure to efforts to crack down on drug trafficking and illegal migration. The move could potentially violate the USMCA trade agreement, which facilitates duty-free trade between the three countries.
In addition, Trump has proposed a 10% tariff on imports from China, on top of all existing tariffs. While details remain unclear, the proposal follows earlier promises to end China’s most-favored-nation status and impose tariffs of more than 60% on Chinese goods.
The US is a primary market for both Mexico and Canada, absorbing more than 83% of Mexican exports and 75% of Canadian exports in 2023. Tariffs could also disrupt Asian automakers and electronics companies that rely on Mexico as a manufacturing hub for the US market.
Trump, who originally signed the USMCA into law in 2020 after contentious negotiations, will have a chance to renegotiate the deal in 2026 when a “sunset” clause allows for changes or potential withdrawal.
