U.S. President Donald Trump decided to impose high tariffs on Mexican and Canadian products, leading domestic corporations with production bases in these countries to take emergency measures. Mexican territory hosts domestic automotive manufacturers, auto parts companies, and home appliances manufacturers, while battery manufacturers operate factories in Canada.
On 1st (local time), Trump signed an executive order imposing a 25% tariff on imports from Canada and Mexico and a 10% tariff on products from China. Canada and Mexico benefited from zero tariffs on exports to the U.S. under the United States Mexico Canada Agreement (USMCA), which took effect in 2020.
The impact of this measure on domestic corporations varies by industry. Completed vehicle and home appliance manufacturers can respond by transferring their production lines to the U.S., so they are expected to be relatively less affected. However, some auto parts companies with a significant production share in Mexico and battery manufacturers constructing large factories in Canada are anticipated to suffer substantial damage.
◇ Kia, Samsung Electronics, LG Electronics may adjust production and supply chains
Among domestic vehicle manufacturers, Kia is the only one with a factory in Mexico. Kia produces models such as the Pride (export name Rio), K3, and K4 at its Nuevo León plant in Mexico. In 2023, Kia sold 782,451 units in the U.S., with approximately 20% of those vehicles, or 155,000 units, produced in Mexico.
Kia believes the damage from the U.S. tariff measure will not be significant. During its ‘2024 performance conference call’ held on the 24th of last month, Kia noted, “In the short term, additional burdens may arise due to tariffs, but they will not undermine profitability. We will adjust the supply chain by shipping some production volumes to Canada instead of the U.S.”
Some suggest that domestic vehicle manufacturers may benefit in the long term. This is because U.S. automakers have significantly larger production volumes in Mexico, and if tariffs are imposed, the price competitiveness of these companies will diminish greatly. In 2023, a total of 2,554,000 vehicles were exported from Mexico to the U.S., with over half, or 1,313,000 units, manufactured by U.S. companies such as General Motors (GM), Ford, and Stellantis.
Domestic corporations producing home appliances in Mexico are also expected to respond by relocating their production lines to the U.S. Samsung Electronics exports TVs produced in the Tijuana region and refrigerators, washing machines, and dryers manufactured in Querétaro. LG Electronics has factories producing TVs and refrigerators in Reynosa and Monterrey.
Samsung Electronics is considering expanding production volumes at its washing machine factory in South Carolina, which was completed in 2018. LG Electronics is also reportedly considering transferring the production volumes of refrigerators and dryers from Mexico to its factory in Tennessee.
◇ Battery manufacturers building large factories in Canada face a direct hit
In Canada, domestic corporations primarily producing electric vehicle batteries and materials have established a presence. Canada has rich mineral resources and had previously no tariffs when shipping to the U.S. Currently, many battery and materials companies are either constructing factories in Canada in partnership with U.S. automakers or are just starting mass production, so significant damage is anticipated if tariffs are imposed.
LG Energy Solution has launched a battery factory in Ontario, Canada, in partnership with Stellantis, which has been operational since late last year. POSCO FUTURE M is collaborating with GM to establish Ultium CAM, a company building a cathode production facility in Quebec. Enchem is constructing an electrolyte production facility in Windsor, while Solus Advanced Materials is building a battery foil factory in Quebec.
Auto parts companies with factories in Mexico are also expected to be affected. LG Magna, a joint venture between LG Electronics and Canadian parts manufacturer Magna, currently produces electric vehicle drive motors and inverters in Coahuila, Mexico, and lacks production facilities in the U.S. Hence, it is challenging to move production volumes. HL Mando, which manufactures parts for Kia, GM, and Ford in the same region, may face a sharp decline in supply volumes if U.S. exports of completed vehicles are blocked.
An automotive industry official said, “With President Trump expressing intentions to reduce support and benefits for electric vehicles, battery and parts companies in Canada and Mexico are likely to face double jeopardy.”