Japanese automakers and suppliers with manufacturing facilities in Mexico and Canada are bracing for potential tariffs as the incoming administration under President-elect Donald Trump has indicated a willingness to impose punitive measures on imports from these countries. The looming threat of tariffs has put companies like Toyota, Honda, Nissan, and Mazda on alert, given their significant operations in countries where labor costs are relatively low. These companies extensively utilize the benefits of the United States-Mexico-Canada Agreement (UMCA), a trade deal that exempts imports and exports among the three countries from tariffs under specific conditions.
Toyota and Honda, in addition to their operations in Mexico, also have production facilities in the Canadian province of Ontario, strategically located close to major U.S. auto industry hubs such as Michigan and Ohio. Leveraging the provisions of the UMCA, these companies export a substantial portion of their vehicles built in Mexico and Canada to the United States. The trade agreement, which came into effect in 2020 following renegotiations by the Trump administration, has facilitated cross-border trade among North American countries, benefiting manufacturers and suppliers in the region.
Nissan, another major player in the automotive industry, faces the prospect of significant challenges with about 26 percent of the vehicles it sold in the United States in fiscal 2023 being manufactured at its Mexican plants. The company's recent announcement of workforce reductions and production capacity cuts due to underperformance in key markets like the United States and China indicates the potential impact of heightened tariffs. Suppliers, such as Mitsui Chemicals Inc. and Denso Corp., are also closely monitoring the situation, as any increase in tariffs is expected to have ripple effects on the supply chain network spanning across Mexico, the United States, and beyond.