From Monterrey to Michigan to Mississauga: The Engine Driving U.S. Competitiveness

The United States has traded cars and parts freely with Canada since 1965 and with Mexico since 1994. Trade agreements such as the USMCA have allowed automakers to design the most efficient and cost-effective supply chains without concern for North American borders. Hundreds of billions of dollars in raw materials, components, and finished vehicles move between the three North American countries every year. This joint production network has become a true engine for regional growth and a cornerstone of U.S. manufacturing strength.

Automakers produce where they can secure the best price, the highest quality, and the most reliable delivery. Much of North America’s aluminum comes from Quebec, where abundant hydroelectric power enables the production of cheap, reliable, and zero-emission energy for smelting. This aluminum is then shipped across the border to U.S. and Mexican plants for shaping and assembly. Pennsylvania remains a major source of automotive steel thanks to its natural resources—iron ore, timber, natural gas, and limestone—and its access to river transport that lowers costs and speeds delivery. Mexico specializes in casting and molding car parts, a labor-intensive process that benefits from its competitive labor costs. These components flow north into U.S. and Canadian facilities where they are incorporated into engines, transmissions, and finished vehicles. This arrangement has delivered economic benefits by sourcing components from Canada and Mexico and keeping costs competitive with European and Asian manufacturers. For the United States, the integrated and efficient auto trade system is not only a source of affordable, high-quality vehicles but also a foundation for advanced manufacturing innovation, from electric vehicles to autonomous driving technologies.

However, these gains, and the foundation of an integrated automotive market in North America, are now threatened by U.S. tariffs. Since February 2025, the United States has imposed a cascade of trade restrictions that strike at the core of the auto supply chain.

The first tariff wave came with the announcement of a 25 percent tariff on all imports that failed to meet USMCA’s rules of origin, immediately raising costs and discouraging investment by North American automakers reliant on cross-border inputs. On March 12, a new 25 percent duty on steel and aluminum imports was introduced, followed on March 26, when the United States announced a blanket 25 percent tariff on automobile imports worldwide. The cumulative effect was stark. For USMCA partners, auto tariffs now range from zero on fully compliant parts to 25 percent for each vehicle’s non-U.S. content and up to 27.5 percent for non-USMCA-compliant auto parts and vehicles. By June and July, escalation returned: Duties on steel, aluminum, and related derivatives were doubled to 50 percent; copper products and derivatives were hit with a 50 percent tariff; and even Canadian exports now face a 35 percent duty if noncompliant with USMCA. The result is that USMCA partners currently face higher barriers than competitors in Japan or the European Union, who pay a 15 percent flat tariff. Each measure chips away at the thin margins of North America’s auto sector. Taken together, they threaten the competitiveness of U.S. manufacturing on a macro level.

Each measure chips away at the thin margins of North America’s auto sector. Taken together, they threaten the competitiveness of U.S. manufacturing on a macro level.

The economic stakes are high. Avoiding tariffs that could unravel supply chain cooperation is essential to securing long-term investment in North American auto production. While compliance with the USMCA is important, the greater challenge lies in maintaining a stable and predictable trade environment. Political uncertainty, protectionist measures including tariffs, or unilateral trade actions could undermine the trust and integration that have taken decades to build.

North America’s competitive position in the global auto market depends on this cooperation. As China invests heavily in electric vehicle production, battery supply chains, and advanced manufacturing, a fragmented North American market risks quickly falling behind. Conversely, a united North American auto industry can pool resources, share technology, and coordinate investments to secure a dominant position in the industries of the future and ward off competition from heavily subsidized Chinese automakers driving much of China’s overcapacity challenges.

Policymakers must recognize that autos are not just another manufacturing sector. They are a strategic asset that links communities from Monterrey to Michigan to Mississauga, creating jobs, fostering innovation, and driving economic growth across the continent. Protecting and strengthening this integrated supply chain is not simply an economic choice: It is a strategic imperative for North American competitiveness in the decades ahead.

Diego Marroquín Bitar is a fellow with the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Ryan C. Berg is director of the Americas Program and head of the Future of Venezuela Initiative at CSIS. Christopher Hernández-Roy is a senior fellow and deputy director of the Americas Program at CSIS. Henry Ziemer is an associate fellow with the Americas Program at CSIS.

The authors would like to thank Fabio Murgia for his invaluable support designing the interactive visualization.