The idea of auto production moving to the United States due to tariffs is a topic that has gained attention, particularly in light of recent trade policies. Tariffs, which are taxes imposed on imported goods, can increase the cost of vehicles and parts produced outside the U.S., potentially incentivizing automakers to shift production domestically to avoid these additional expenses. Here's an exploration of this phenomenon based on current trends and discussions:
Tariffs, such as the 25% levies on imports from Canada and Mexico and the 10% on imports from China proposed or implemented by the Trump administration as of early 2025, directly impact the automotive industry. North America’s auto manufacturing is highly integrated, with parts and vehicles crossing borders multiple times during production. For example, a car assembled in Mexico might use engines from the U.S. or Canada, while components for U.S.-built vehicles often come from across the border. Adding tariffs to this process raises costs significantly—estimates suggest an increase of $4,000 to $12,000 per vehicle, depending on the model and its reliance on imported parts. This cost pressure could push automakers to rethink their production strategies.
The logic behind moving production to the U.S. is straightforward: if companies manufacture within the U.S., they can avoid paying tariffs on imported vehicles or parts, assuming the final product is sold domestically. President Trump has explicitly tied tariffs to this goal, stating that companies moving production to the U.S. would face "no tariffs," aiming to boost American manufacturing jobs, particularly in places like Michigan. Some evidence suggests this strategy might be working. For instance, Honda has reportedly considered shifting production from Mexico to the U.S., and automakers like Volkswagen, Porsche, and Audi are said to be planning similar moves, according to posts on X and industry chatter. Meanwhile, Ford’s CEO Jim Farley has acknowledged that short-term tariff disruptions could be managed, but prolonged tariffs might force broader shifts, though he warns of potential damage to the U.S. industry if not applied comprehensively.
However, relocating auto production isn’t a quick fix. Building or expanding factories in the U.S. is a multi-year, multi-billion-dollar endeavor. Automakers have spent decades optimizing supply chains across North America under free-trade agreements like NAFTA and its successor, the USMCA. For example, General Motors exports 85% of its Mexican output to the U.S., while Ford and Toyota rely heavily on plants in Mexico for models like the Maverick and Tacoma. Shifting this production requires not just new facilities but also retraining workers and securing domestic suppliers—challenges compounded by higher U.S. labor and material costs compared to Mexico. Analysts estimate that even moving 1 million units back to the U.S. (about a quarter of current imports from Canada and Mexico) could take years and still result in higher consumer prices due to these expenses.
On the flip side, tariffs could disrupt the industry enough to force action. The threat alone has prompted companies to reassess plans—Toyota paused a $1.45 billion expansion in Mexico, and Mazda has hesitated on similar investments. If tariffs persist, production cuts of up to 30% in North America (equating to 20,000 units per day) could occur, potentially driving companies to prioritize U.S. production to maintain profitability. Yet, this comes with risks: higher costs might reduce demand, leading to layoffs and a possible recession, as some experts predict a 1.5 to 2 million annual drop in U.S. sales.
The counterargument is that tariffs might not fully achieve the desired shift. Foreign automakers like Hyundai and Toyota, which import vehicles from Asia, could gain a competitive edge if North American tariffs don’t extend globally, as Ford’s Farley has pointed out. Moreover, the complexity of modern supply chains means some parts will still need to be imported, facing tariffs regardless of where the final assembly happens. The U.S. also lacks excess factory capacity in many cases—Ford, for instance, has no spare plants to absorb shifted production without significant investment.