Trump's Auto Tariff Push Could Cost Detroit's Big Three $2 Billion Annually

Reuters reported on Thursday (13th) that Detroit's three major U.S. automakers are preparing to warn the Trump administration: proposed adjustments to the North American Free Trade Agreement (NAFTA) could force each automaker to incur at least $2 billion in additional annual costs—not only increasing existing tariff burdens but also weakening their ability to compete with Japanese, South Korean, and European automakers.

U.S. automakers are still absorbing the impact of tariffs previously imposed by the Trump administration on steel and aluminum, auto parts, and finished vehicles imported from Mexico and Canada. Now, ahead of a new round of negotiations with Mexican officials next month, Washington is considering stricter rules of origin, further fueling concerns among General Motors (GM-US), Ford (F-US), and Stellantis (STLA-US), the parent company of Jeep.

The most controversial proposal requires that vehicles contain at least 50% U.S.-made components to qualify for lower tariffs. Washington is also considering raising the North American manufacturing content threshold from the current 75%. According to internal estimates from two automakers, these requirements could force each Detroit automaker to spend at least $2 billion more annually—excluding costs already incurred from existing tariffs.

General Motors estimates its total tariff-related expenses this year will reach $2.5 billion to $3.5 billion, potentially consuming over 20% of its operating profit. Ford estimates the net impact of tariffs this year at around $1 billion. The U.S. Trade Representative (USTR) did not respond to requests for comment. Trump administration officials have previously stated that the tariff policy aims to encourage companies to increase investment in U.S. factories and create jobs.

To demonstrate its commitment to expanding U.S. manufacturing, Ford announced on Wednesday that it will shift production of Lincoln vehicles for the U.S. market from China to U.S. plants, explicitly citing the Trump administration's tariffs as a key driver.

Ford CEO Jim Farley said the company initially underestimated the Trump administration's determination to increase U.S. auto production but quickly realized it needed to adjust its strategy. Ford already produces a higher proportion of vehicles sold in the U.S. domestically than its Detroit competitors.

U.S. Commerce Secretary Howard Lutnick said he hopes more automakers will follow Ford and General Motors in bringing production back to the U.S., and noted that the government and industry have been working together to find suitable policy directions.

U.S. and Mexican officials are scheduled to hold a fourth round of trade talks next month. Canadian officials are currently negotiating with U.S. counterparts this week to prevent a new round of U.S. tariffs on Canadian goods from taking effect next week.

Japanese, Korean, and European automakers pay only 15% tariffs—Detroit automakers cry foul

The American Automotive Policy Council (AAPC), representing Ford, General Motors, and Stellantis, argues that U.S. automakers are at a disadvantage because vehicles exported from Japan, South Korea, and Europe to the U.S. are subject to only a 15% uniform tariff.

In contrast, U.S. automakers currently face about 25% tariffs on vehicles imported from Mexico and Canada, with only those vehicles containing a higher proportion of North American content receiving lower tax rates. Since Detroit's three automakers have long relied on supply chains spanning the U.S., Mexico, and Canada, stricter rules of origin could force them to restructure supply chains and adjust production configurations, thereby increasing vehicle costs.

General Motors CEO Mary Barra previously stated that the company is working to ensure U.S. automakers can compete fairly and win against European, Japanese, and South Korean rivals.

A U.S. auto industry executive noted that Trump was able to reach agreements faster with South Korea and Japan because their governments could represent their domestic auto industries in broad trade negotiations involving national security. U.S. automakers, however, lack such leverage—no president or prime minister can directly negotiate with Trump on their behalf.

General Motors says vehicles using a high volume of U.S. and North American components should receive more favorable treatment than those that do not, and expressed encouragement over the progress in government negotiations. Stellantis also said it is working with governments in the U.S., Mexico, and Canada to ensure automakers can continue producing and selling affordable vehicles for consumers in North America.

Detroit automakers support strengthening U.S. manufacturing but worry that if the rules of origin thresholds are raised too sharply at once, it will further burden an industry already facing billions in tariff costs. As Asian and European competitors enjoy lower tariffs, if the Trump administration fails to balance domestic production goals with automaker costs, the ultimate price may be passed on to American consumers.