Speaker 3
And I think that has people freaked because there was this idea that this was a negotiating tactic. This was never really going to happen. I mean, tariffs on Canada and Mexico for the auto industry, you know, that's like DEFCON 1, right? This could wipe out profits for companies big and small. So, yeah, people are freaked today.
Speaker 2
How will these tariffs impact the U.S. auto industry? I
Speaker 3
mean, there is no industry that has more at stake than automotive. Of all of the trade that happens between Canada and Mexico, the car business accounts for nearly a quarter of that. About 23% of cars that are sold in the U.S. are built in either Canada or Mexico. Half of the car parts that come into the country that are imported here to be put into cars, about half of that comes from either side of the border. That's $100 billion of stuff. And then beyond the car companies, you know, there are thousands of part suppliers.
Speaker 2
When we talk about an American-made car, what does that mean in reality? Well,
Speaker 3
I think most people think of it as cars that are assembled inside of the U.S. And, you know, most of the cars that get sold in the U.S. are built here. It's a small majority. But a lot of those cars, the guts of the car, is imported. A lot of it from Mexico, a lot of it from Canada. So it can be U.S. built, U.S. made, but a lot of it's relying on foreign parts. The
Speaker 2
auto industry's supply chain was shaped by the North American Free Trade Agreement. NAFTA took effect in 1994 and created a free trade zone between the U.S., Canada, and Mexico. Here's President Bill Clinton at the time. NAFTA
Speaker 1
will tear down trade barriers between our three nations. It will create the world's largest trade zone and create 200,000 jobs in this country by 1995 alone.
Speaker 2
President Trump, in his first term, began renegotiating NAFTA. And that deal, known as USMCA, was finalized in 2020. The
Speaker 3
renegotiation that Trump did in his first term of NAFTA that produced what we call the USMCA now, I mean, it was really, you know, there were some incremental changes. It required some costs and some investment and companies had to make more stuff in North America in order to bypass any tariffs. But it was, you know, one executive referred to it as a rebranding, right? I think auto executives went into this feeling like cooler heads were going to prevail in a way. Under
Speaker 2
both deals, there were no tariffs imposed on car parts and materials. And so car manufacturing continued to move regularly across the borders with Mexico and Canada. So now the auto supply chain includes thousands of companies sending parts back and forth across borders multiple times. Our
Speaker 3
colleagues at The Wall Street Journal did a very nice analysis just the other day about how it followed one part, a piston, a pretty basic component that crossed the border six times before it got into a car, right? It was raw aluminum in Michigan, and then it was shipped to Canada to make into a basic part. And then, you know, back to Michigan for machining, and then down to Mexico to be like finished. And then it went to Wisconsin at one point, and then, you know, back to Michigan to be put in an engine. So like, we don't know exactly if in that case like that, and that's, that's sort of the norm in the industry. We don't know if that's going to get hit every single time, but that's part of the sort of the freak out, right, is people don't know and they've got to assume the worst at this point. When
Speaker 2
Trump started floating the idea of 25% tariffs on Mexico and Canada, how did the automakers react? I
Speaker 3
think on the tariff piece, you know, they felt like they've seen some of the rhetoric and bluster kind of become more manageable once it's put into policy. But then as soon as, you know, a week or two after the inauguration, he announced a 25% tariff on Mexico and Canada. I mean, that was just kind of worst case scenario. I mean, he wasn't talking about redoing that trade pact. I mean, he was almost as if he was acting like it didn't exist, right? And so I think plans became a little more urgent then because it was so extreme.
Speaker 2
And did auto executives try to negotiate with the Trump administration?
Speaker 3
Yes, there's been an intense lobbying effort going on. You know, one big point they've made is like, look, you know, you can do this and it's going to hurt everybody in the industry, you know, GM and Ford and Nissan and Honda, but it's going to hurt the U.S. companies more because they have a more extensive footprint in North America and there are imported cars coming from Japan and Korea, virtually tariff free. And so this is going to create an unlevel playing field. It's going to help our competitors and it's going to hurt us. But I think the bottom line point that they've really been trying to make to the administration is like, this is going to have the opposite effect of what you think. Like this is going to hurt our ability to invest in factories and create U S manufacturing jobs.
Speaker 2
Now that the tariffs are in place, what's the auto industry going to do? That's next.
Speaker 3
I'm ready for my life to change.