For decades, the US, Canada, and Mexico have worked together to build one of the most integrated manufacturing ecosystems in the world. From automotive supply chains that crisscross borders to aerospace components built through cooperative agreements, North American manufacturing has thrived under trade agreements like NAFTA and its current successor, the USMCA.
But with President Donald Trump reintroducing tariffs and igniting what some are calling a trade war, the future of this cooperation – and the prosperity it has brought about – is being tested.
North America’s industrial backbone is built on regional collaboration. NAFTA, implemented in 1994, eliminated most tariffs between the three countries and set the stage for the complex, cross-border supply chains we see today. This made possible a North American supply chain that saw goods and materials cross borders many times before finally being sent to market.
Companies took advantage of lower production costs in Mexico, the skilled workforce in Canada, and the advanced infrastructure and design capability in the United States to create an efficient, mutually beneficial and cooperative manufacturing system. The result was probably the most advanced and successful manufacturing bloc the world has ever seen.
The USMCA, which replaced NAFTA in 2020, largely maintained these benefits for workers and companies alike, while tightening labor and environmental regulations, particularly for manufacturing in Mexico. This ensured fairer wages for workers and greater intellectual property protections for companies operating across borders.
Despite the benefits of USMCA and decades of free trade, President Trump has called North American cooperative manufacturing into question by announcing a fresh round of steep tariffs on Canada and Mexico.
On March 4th, Washington began levying a 25% tariff on all imports from Mexico and Canada. Only Canadian oil and gas are excepted, but they are still subject to a 10% tariff. China is also subject to an additional 10% tariff, on top of the 10% Trump levied last month. All of this was enacted unilaterally without any say from Congress and in direct contradiction to the USMCA treaty. The next day, Trump extended a temporary one-month exemption for automakers to relocate production to the US.
The Big Three automakers – General Motors, Ford, and Stellantis – are particularly affected. With plants and supply chains deeply embedded in Mexico and Canada, shifting production within a month is unrealistic. Ford CEO Jim Farley noted that while Ford could absorb the tariffs short-term, prolonged duties would create industry-wide disruption.
The result? Higher car prices. Analysts estimate tariffs could drive up vehicle costs by as much as $12,000, making affordability a major concern for consumers and dealerships alike.
The auto industry is the best case study for North America’s interconnected manufacturing. Car parts can cross borders multiple times before final assembly. And this helps American business. The USMCA requires at least 75% of a vehicle’s components to be sourced from North America to qualify for duty-free treatment. These strict “rules of origin” were designed to keep manufacturing within the region while maintaining cost efficiencies, thus producing affordable vehicles while creating jobs in the US.
However, if tariffs remain in place, US automakers might have to rethink their strategies. Some may choose to absorb higher costs, while others could pass them on to consumers or relocate production – though the latter is costly and time-intensive. Either way, the likely result will be higher prices for consumers – as with many other industries that rely on North America’s cooperative manufacturing advantages.
While the automotive industry is in the spotlight, other sectors are feeling the heat too. Electronics, aerospace, and industrial machinery companies rely on North America’s integrated supply chain. The USMCA’s strong intellectual property protections and labor provisions have made Mexico an attractive destination for manufacturing, offering cost savings without compromising security or quality.
But with Trump’s tariff push, companies must decide whether to endure higher costs or restructure supply chains. Some may explore shifting operations within North America to optimize costs under the USMCA’s rules. Others might look further afield to countries outside North America to sidestep tariffs entirely – undermining the very goals of reshoring efforts.
North American cooperative manufacturing has endured policy shifts, trade renegotiations, and political shifts. While Trump’s tariffs add new challenges, they don’t erase the long-term benefits of regional collaboration. The USMCA still offers substantial advantages for companies that understand its provisions and structure their operations accordingly.
As businesses assess their next steps, flexibility will be key. Whether navigating tariffs, optimizing supply chains under USMCA, or balancing costs, manufacturers must adapt while keeping an eye on policy changes that could shape the future of North American trade.
