Donald Trump imposes 25% tariff on Canada, Mexico; 10% on China – auto sector braces for price hike

Donald Trump has followed through on his promise to impose tariffs on imports from Canada, Mexico and China. On February 1, 2025, the United States president signed an executive order that aims to hold the three countries accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into the US.

With this, a 25% additional tariff will be imposed on imports from Canada and Mexico and a 10% additional tariff on imports from China. Energy imports from Canada were singled out, however, to be taxed at a lower rate of 10%.

In retaliation, prime minster Justin Trudeau said on February 2, 2025 that Canada would impose 25% tariffs on US goods, while Mexican president Claudia Sheinbaum ordered her economy minister to implement tariff and non-tariff measures to defend Mexico’s interests, reports Reuters. China’s ministry of commerce has said the country will file a lawsuit with the World Trade Organisation (WTO) and take necessary countermeasures to safeguard its rights and interests.

According to a Bloomberg report, Trump’s tariffs against Canada and Mexico will cause vehicle prices to increase even further. “The auto sector is going to shut down within a week. At 25%, absolutely nobody in our business is profitable by a long shot,” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association.

Consulting firm AlixPartners says the tariffs would impact almost one quarter of the 16 million vehicles sold in the US each year as well as the parts and components that go into them – an import market that totalled USD225 billion (about RM1 trillion) in 2024. Tariffs are said to add USD60 billion (about RM270 billion) in costs to the industry, which will likely be passed on to consumers.

“The automotive industry cannot adapt to such a decision in the short term,” said Francisco Gonzalez, executive president of Mexico’s National Auto Parts Industry Association, who added that tariffs would likely reduce growth in Mexico’s auto parts sector from a projected 2% to zero in 2025.

Trump has expressed concern that China is using Mexico as a “backdoor” to send cheap goods to the US, although this claim is overblown according to Gonzalez who said less than 3% of components sold in Mexico are imported from China.

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