Auto industry leaders advised to prepare for major trade policy changes

Prepare yourselves.

That’s the advice experts at EY have for automakers and other companies facing the prospect of drastic trade policy changes, like proposed 25% tariffs on imports from Mexico and Canada.

EY experts emphasized during a Feb. 20 discussion that the tariff situation is rapidly evolving. Their teams have had hundreds of meetings on the topic in recent months, they say, as clients have sought clarity on President Trump’s flurry of executive orders, shifting implementation dates—and what strategies they can employ both now and in the long run to mitigate risks.

“Every organization should be doing something to make sure that they’re ready for the next thing to happen,” Martin Fiore, EY Americas deputy vice chair for tax, said during the first in a three-part series of briefings on the status of tariffs under Trump.

Tariffs have been a focus among auto executives since they were proposed, as the auto industry has significant presence in Mexico and Canda—from factories to materials like steel. Analysts have warned that tariffs, combined with other Trump administration policies rescinding support for EVs, could impact auto sales later this year. They’ve also raised concerns about the likelihood of tariffs causing price increases when consumers already are struggling with affordability.

1, 2, 3: Companies should take three steps to prepare, Fiore said: A “rapid assessment” of how the proposed tariffs would affect their business; scenario planning involving an evaluation of areas like tax and supply chain; and modeling their supply chain networks.

Auto production is closely intertwined between the US, Canada, and Mexico. Some 70% of the vehicles built in Canada and Mexico each year are for the US, according to S&P Global Mobility. Industry stakeholders have warned that tariffs could put China, the world’s leader in EV sales, in an even more competitive position at a time when domestic automakers are struggling to compete on new technologies.

A recent S&P Global Ratings report concluded that a “sustained 25% tariff on imports from Mexico and Canada, combined with new tariffs on steel and aluminum, could significantly impact the profitability metrics of North American automakers and suppliers, potentially costing them billions of dollars.”

• The analysis also notes how automotive suppliers’ “significant electrification investments” have already contributed to lower “profitability and credit metrics cushion.”

Action items: Lynlee Brown, a partner in EY’s global trade practice, said that importers have fewer tools to respond to Trump’s proposed policy changes than they did during his first administration, and that her team is focused on helping clients figure out short-term solutions to help mitigate impacts. But solutions like reconfiguring supply chains would take years to complete.

“It’s not just tariffs. On top of it, it’s the geopolitical volatility. On top of it, it is the immigration action. On top of it, it is the energy policy. On top of it, it’s the fiscal policy,” Sameer Anand, EY-Parthenon Americas supply chain leader, said. “I have to first get through, what will I do with the tariffs? That’s what we are dealing with right now.”

Bottom line: Key dates for business leaders to keep in mind include March 4, when the Canada and Mexico tariffs could go into effect; March 12 for the enactment of steel and aluminum tariffs, and early April, when experts expect more clarity from the Trump administration on its broader trade vision.

“While US trade policy prior to Trump frequently provided a level of stability and predictability for global businesses, at this point, both importers and exporters should really be prepared for disruption and volatility for the foreseeable future,” Evan Giesemann, chief trade policy advisor in the Washington Council EY practice, said.