The U.S.-Canada trade war is creating a headache for auto-parts makers

A truck passes over the Peace Bridge between Canada and the United States, in Fort Erie, Ontario, on August 18, 2026. Cole Burston/AFP via Getty Images hide caption

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The U.S. and Canadian auto industries have been tightly woven together for decades. But the latest tariff flareup between the two countries may complicate that.

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Think of that sticker on the windows of new cars breaking down how much of the vehicle's content comes from the U.S. and Canada. From a manufacturing point of view, content from both places has long been considered deeply intertwined.

But the U.S. and Canada failed to reach a new trade deal this summer, and the trade war between them has escalated quickly. In August, the U.S. enacted new tariffs on aluminum and steel, and President Trump has also threatened 50% tariffs on Canadian vehicles, auto parts and steel effective on Jan. 1. On Tuesday, Canada enacted retaliatory tariffs on a variety of U.S. goods — including on American steel and aluminum.

All of this puts the auto manufacturing industry in a jam.

For major U.S. carmakers, analysts say, the tariffs introduce uncertainty as companies determine whether to adjust their supply chains in the long run, or to absorb new costs in the short term. But for the smaller businesses that supply those big companies with thousands of parts — think bolts, or the steel rods for steering wheels — the tariffs could spell bigger, more expensive trouble.

" It's really, really damaging to the industry and to the financials of the industry. It makes planning for things very difficult," says Dan Hearsch,  global co-leader of automotive and industrial at the consulting firm AlixPartners.

For these companies, he says, the new tariffs follow years of chaos — the aftermath of Covid supply chain shortages, the start-and-stop ramp up to making more electric vehicles, the need to grapple with pre-existing tariffs.

"It's one more thing, on top of the one more thing, that was on top of the one more thing, that was on top of the one more thing," Hearsch says.

The U.S. and Canada's auto relationship

The U.S. and Canada started weaving their auto supply chains together in 1965, when they signed a pact with a goal of consolidating their auto industries and expanding their combined market. The pact removed duties on auto products or equipment crossing the border when they are made of at least 50% of U.S. or Canadian content.

Their trade relationship deepened with the 1994 North American Free Trade Agreement, which included Mexico and removed many duties between the three countries, as long as they contained a certain proportion of North American parts. The 2020 United States Mexico Canada Agreement, which revised that deal, included a requirement that auto content be 75% North American to be able to pass borders without any tariff.

For the auto industry, the free flow of many goods meant that components could be assembled in plants in each country, and ultimately combined in another. The auto supply chain grew into a single ecosystem.

"I've often described it like an omelet" with ingredients from all three countries, says Jim Jarrell, president and CEO of Linamar Corporation, a Canadian manufacturing company that handles both auto and agricultural products.

"Think about a casting that starts in Mexico and that gets sent into the U.S. to get processed. That part then jumps over to Canada to get further processed," says Jarrell, referring to a molded piece of metal. "Then we ship it back into the U.S. sub-assembly, to get it finished and assembled," Jarrell says.

"And that story is, quite frankly, not unusual," he continues. "That is actually how the industry works."

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Linamar Corporation has a roughly equal number of plants in the U.S. and in Canada, but they also have plants in Mexico and in Asia, Jarrell says. And each of them make slightly different things, Jarrell says, making it potentially difficult to alter those supply chains in response to new tariffs — or the threat of additional tariffs in January.

To alter where or how parts are made would mean re-evaluating entire supply chains, Jarrell says. "So it's a lot of cost and time."

Aisin Corporation, one of the world's largest transmission makers and suppliers, is based in Japan, but does about 20% of its business in North America, and often moves materials back and forth as their supply chain warrants it. " We've always looked at North America as totally North America, not Canada-specific or U.S.- specific," says Chuck Sanders, the executive vice president for the company's North American division. " When there's rapid changes or new tariffs that are introduced suddenly," he continues, "that kind of creates chaos on the business."

Shifting production means moving jobs around. That's a problem both the company and its workers would like to avoid. "We want to continue the business so they have a long-term future with us," Sanders says.

The effect on the auto-part supply chain

Cars are made with tons — literal tons — of steel and aluminum, and with thousands of parts. How many? It depends on when you stop counting.

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For instance, take a steering wheel. There's a metal rod, often padded in leather or vinyl. Then there are sensors, an airbag, an instrument cluster with "lots of dials and things that move," Hearsch from AlixPartners says. In that steering wheel system, he says, "There's probably 50 to 100 different parts coming from all over the world."

Manufacturers occupy different tiers within the automotive supply chain. "Tier one is a supplier that delivers a part or a system to the automaker," Hearsch says. Think of a headlamp, for example. " A tier two is a company who makes something that goes to a tier one" — the smaller pieces that make up a headlamp, he says. And then a tier three company feeds parts to tier two.

Any of these components might be made from raw metals like steel and aluminum, which could have been subject to tariffs when they were first imported to North America. Now, those components could be subject to additional tariffs as they repeatedly move across the border.

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For now, many auto suppliers are taking a watch-and-wait stance. Bosch and Magna, two of the biggest suppliers to North American companies, emailed NPR statements saying that they are monitoring the situation and its potential effects, particularly on customers.

The Motor & Equipment Manufacturers Association trade group also wrote in an emailed statement that it's "concerned by the continued escalation of trade actions between the United States and Canada."

"The vehicle supplier industry has built deeply interconnected North American supply chains over decades, and policies that increase costs or create barriers ultimately weaken the competitiveness of the entire region as we face challenging global competition," the statement continued.

That global competition comes from the makers of Chinese electric vehicles, which are becoming increasingly popular, says economist Sue Helper, who studies the auto industry at Case Western Reserve University.

Like Hearsch, she says the uncertainties of the post-Covid supply chain and the transition to EVs, as well as potential disruptions from AI, make it hard for automakers to decide when to make changes to their supply chains, so they "don't make the wrong investment and don't jump too soon or too late," she says. "So it's a really difficult time. It's always a tough business, but it's particularly tough right now."

"The challenge is that the automotive industry does not move at the speed of politics," says Sean Tucker, an editor at Cox Automotive, an automotive services and technology provider. It takes time for automakers to reconfigure their supply chains — or decide whether they should, since tariff policy could change under a future presidential administration.

If Canada and the U.S. do manage to disentangle their supply chains, Jarrell of Linamar says, it could cost years — and a lot of money for auto-parts makers. "The more uncertainty there is, obviously the harder it becomes to invest and grow in a confident way," he says.

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