Why U.S. Automakers Aren’t Rushing to Move Production Despite Tariff Pressure

The U.S. auto industry faces mounting pressure from tariffs, with policymakers urging automakers to shift production to American factories. The idea sounds simple—move production home and avoid extra costs—but the reality proves far more complex. Automakers navigate a web of financial risks, logistical hurdles, and supply chain dependencies that make immediate relocation nearly impossible.

Tariffs and Uncertainty Create Challenges

Recent tariffs on steel and aluminum imports have already increased production costs. Additional levies on vehicles and parts from Asia, Europe, Canada, and Mexico loom, threatening to disrupt operations further. The administration argues that automakers can sidestep these costs by manufacturing domestically. However, industry leaders remain cautious, pointing to the unpredictability of trade policies.

Automakers hesitate to make billion-dollar investments in new facilities without long-term stability. General Motors CFO Paul Jacobson highlighted this concern, stating that shifting production requires certainty in trade policies. Investing in new plants only to see policies reverse could create significant financial losses.

Costs and Timelines Complicate Relocation

Shifting production isn’t as simple as flipping a switch. Automakers spend years planning and executing factory transitions. Even repurposing an existing facility to produce a different vehicle can result in year-long shutdowns. Stellantis, for instance, committed to reopening a plant in Illinois after a labor strike settlement, yet production won’t resume until 2027.

Building a new factory from the ground up extends timelines even further. Between site selection, permitting, construction, and workforce training, getting a plant operational can take five years or more. These long lead times make reacting to short-term tariff policies impractical.

The Cost of ‘Made in America’

Even if automakers bring production stateside, higher labor costs and supply chain disruptions could make vehicles significantly more expensive. The Anderson Economic Group estimates tariffs could add between $3,000 and $12,000 to the price of a car. Many budget-friendly models, such as the Jeep Compass and Ford Bronco Sport, rely on lower-cost manufacturing in Mexico. Relocating their production to the U.S. would either inflate prices beyond consumer reach or force automakers to discontinue certain models altogether.

Moreover, no car is entirely American-made. North American auto production operates under a highly integrated supply chain, with parts moving across borders multiple times before final assembly. The U.S. imports $82 billion in auto parts from Mexico and $19 billion from Canada annually. Disrupting these supply chains could eliminate American jobs rather than create them.

Automakers Aren’t Rushing to Build New U.S. Plants

Despite claims that automakers are rapidly expanding U.S. manufacturing, no major company has announced new plants solely in response to tariffs. Honda recently confirmed that it will continue producing the next-generation Civic at its Indiana facility instead of moving operations to Mexico, but no new factories are in the works as a direct result of trade policies.

Most current U.S. factory projects stem from federal incentives, particularly those linked to the Inflation Reduction Act. These investments focus on electric vehicle production, not necessarily as a response to tariffs. Meanwhile, industry leaders warn that broad tariffs could destabilize the entire auto sector. Ford CEO Jim Farley cautioned that a 25% tariff on Mexican and Canadian goods could severely damage the U.S. industry.

What’s Next for Automakers?

Tariff pressure continues to mount, but automakers remain resistant to sudden shifts. Without long-term policy stability, companies risk financial setbacks by making premature moves. Instead of a sweeping relocation effort, the industry will likely push for negotiated trade agreements that preserve North America’s integrated auto market.

Will policymakers find a solution that protects American jobs without disrupting the industry, or will automakers be forced into costly and uncertain adjustments?

‍