The goal of President Donald Trump's administration to lure manufacturers to the U.S. to avoid hefty tariffs could backfire with some automotive suppliers.
A third of U.S. suppliers said they would move production outside the U.S. if 25 percent tariffs on Canada and Mexico persisted for six months, according to a February survey by MEMA Original Equipment Suppliers, which represents U.S. parts makers.
Companies may source some components outside of the United States-Mexico-Canada Agreement region to places such as Honduras, Nicaragua, Singapore, Thailand and the Middle East in order to avoid higher prices from tariffs, said Mark Wakefield, global automotive market lead at AlixPartners.
Suppliers could "do more of the value-add in a country that isn't subject to these tariffs," he said. "They'll be in discussions with those countries about how they can get some financial aid or support or credits to support certain types of suppliers."
Trump is pursuing a wide range of tariffs, including levies on Canadian and Mexican imports that went into effect March 4 and new duties on steel, aluminum, automobiles, semiconductors and other products slated for the next several weeks. On March 5, White House Press Secretary Karoline Leavitt said Trump will exempt vehicles covered by the USMCA for one month "so that they are not at an economic disadvantage."
Leavitt said Trump told the automakers to "start investing, start moving, shift production here to the United States of America where they will pay no tariff. That's the ultimate goal."
Trump and officials in his administration say the tariffs will end what they view as unfair trade practices and will revive U.S. manufacturing, including in the auto sector.
"I've spoken to the car manufacturers. They have ample excess capacity in America, and they can move that production back," Commerce Secretary Howard Lutnick said March 4 on CNBC. "They can't do it in three months, but they can do it in six months."
To be sure, automakers with excess capacity at their U.S. assembly plants could increase domestic production to account for tariffs. Automakers are also expected to announce investments over the next several weeks and frame them as examples of their commitment to U.S. manufacturing, said Stephanie Brinley, principal automotive analyst at S&P Global Mobility.
"We are prepared to work with the Trump administration to support further investment in our U.S. manufacturing footprint, but we need time to make these changes without negatively impacting the business and our customers," Stellantis told its dealers March 4 in an email seen by Reuters.
But given the industry's multiyear product cycles and the large amount of capital needed, many investments are likely to have been in the works or under consideration for quite a while.
"It's almost a little bit like the way a UAW negotiation would go, where you come out in front of contract negotiations to announce the investments you were already planning," Brinley said on a March 4 Automotive Press Association webinar.
Automakers could shift some assembly, but it would be "categorically false" to suggest parts production could move in as little as six months, said Collin Shaw, president of MEMA. That's particularly true for labor-intensive components such as seats and wire harnesses because of worker shortages. There are as many as four manufacturing job openings for every applicant, he said.
"If that is what the administration thinks, it's sad because it's a multiyear journey, at least two years to move production from location to location," Shaw said.
More than 80 percent of U.S. suppliers surveyed by MEMA in February said tariffs on Mexico would negatively impact their business. More than two-thirds said the same about Canada tariffs. If the tariffs lasted a month, 24 percent said they would slash or delay investments and 13 percent said they would cut U.S. jobs.
If the tariffs persist for six months, 57 percent of suppliers said they would cut or delay investments and 47 percent would cut U.S. jobs.
Some suppliers have already moved business to lower-cost countries in response to wage inflation in the U.S. and Mexico. For example, Lear Corp., the largest U.S.-based supplier, is looking to source jobs in its wire harness business to Africa and eastern Europe. In 2021, Lear acquired injection molder M&N Plastics of Sterling Heights, Mich., specifically to boost its vertical integration possibilities in electronics.
In February 2025, Lear acquired StoneShield Engineering, a Portuguese automation company, to boost its capabilities in robotics for wire harness manufacturing to improve productivity.
Whether companies pursue production moves in response to tariffs is an open question. Details about the reciprocal tariffs and automotive duties the White House eventually imposes will be crucial, AlixPartners' Wakefield said.
Companies will also keep rules-of-origin requirements under the USMCA in mind, Wakefield said. The pact requires manufacturers to source at least 75 percent of the value of imported vehicles and parts from within North America, or else they become subject to a tariff. Manufacturers that are close to the threshold might think twice about moving production out of the U.S. or Mexico, especially if they believe the new tariffs will be lifted, he added.
"What do you do with USMCA values?" Wakefield said. "It's sort of a Catch-22 there, depending on how close you are to the limits on value."