The US Auto Industry Is Facing Extinction

When Donald Trump assumed office for the second time a year ago, he almost immediately began imposing massive import tariffs on most of the U.S.’s biggest trading partners, including immediate neighbors Canada and Mexico. He also threatened to annex Canada as the 51st state. Canadians quickly realized their neighbor and long-time ally to the south might no longer be their best friend. This week, Canada’s Prime Minister Mark Carney travelled to Beijing and struck a new trade deal with Chinese leader Xi Jinping that could be a major blow to U.S.-based automakers General Motors, Ford, and Stellantis. 

Tariffs Reshape North American Production

Soon after taking office, Trump imposed tariffs of at least 25% on goods produced in Mexico and Canada, triggering retaliatory tariffs, particularly from Canada. American products were removed from store shelves or became much more expensive. While the administration later moderated some tariffs for goods complying with the US-Mexico-Canada trade agreement (USMCA), it still pushed hard for production to be shifted from Canada and Mexico to U.S. factories, especially for vehicles. 

All three automakers have made changes in manufacturing plans, particularly GM and Stellantis. GM moved some truck and engine production from Canadian plants, and Stellantis abandoned plans to retool its Brampton, Ontario, plant for the next-generation Jeep Compass, choosing instead to produce those vehicles in Illinois. GM also discontinued its Brightdrop electric delivery vans. 

Environmental Rollbacks Push Return to ICE Vehicles

Environmental policy changes and the elimination of federal electric vehicle (EV) tax credits have also hurt the market for EVs. Honda canceled a massive investment for batteries, materials, and EV production in Canada. The damage to Canada's auto industry is likely far from over. 

The administration rolled back and effectively canceled the enforcement of emissions and fuel economy standards to entice automakers back to producing fuel-guzzling and polluting vehicles, which it hopes will be cheaper. Among the first responses from the industry was Stellantis reversing its plan to drop V8 engines from its Ram 1500 pickups. Needless to say, those trucks didn’t get any cheaper to buy (they actually cost more than the turbocharged six-cylinder engines meant to replace them), and they use significantly more fuel, making them more expensive to own and operate. 

Those big, thirsty vehicles already have virtually no market outside of North America and likely never will. When combined with the increasing antipathy that Canadians and Mexicans are feeling toward the U.S., the Detroit automaker’s capitulation to the administration will make it even harder for them to sell in neighboring countries. 

Canada-China Agreement Could Isolate US Auto Industry

All of this brings us back to the new deal between Canada and China. In return for China cutting tariffs on Canadian canola oil and other products, Canada agreed to cut tariffs on Chinese EVs to just 6% from the previous 100%. With Canadian buyers less inclined to opt for American products and low-cost EVs from China entering the market, Canada's automotive industry is beginning its transformation. 

Canada now has a surplus of unused automotive factories and thousands of trained autoworkers out of jobs. It's probably only a matter of time before one or more Chinese automakers set up production facilities in Canada for vehicles, batteries, and materials. Canada is resource-rich and could provide much of the raw materials necessary for high-volume battery production serving EVs and energy storage systems.  

Even before the Trump administration came back to power, Chinese companies were making significant inroads into Latin America. In 2025, more than 20% of the vehicles sold in Mexico were made in China, up from just 1% five years earlier. If Canada follows a similar trajectory over the next several years, along with local production of Chinese models, the U.S. industry will be landlocked. 

Apart from Jeep, Stellantis sells few American-made vehicles in Europe or elsewhere. GM’s European presence is limited to Cadillac and Corvette in small numbers, and like other Western automakers, it has shrunk dramatically in China in the last five years. Ford’s European sales consist mostly of vehicles built there in declining numbers, and the company has struggled to gain much traction in China. 

While Ford and GM could probably survive on the U.S. market alone, Chinese automakers will increasingly challenge them from both north and south. Stellantis may have to give up on being a global power and divest what’s left of its American operations. 

What to Do?

The industry must chart its own path forward by creating globally competitive products that compete on features, performance, and most importantly, price. In the near term, vehicles like the Ram 1500 TRX and Hellcat-powered Durangos will boost the bottom line. But going back to an overreliance on big V8 trucks and SUVs isn’t going to cut it for long. Automakers need affordable electric options, including hybrids, extended range EVs (EREVs), and EVs for both domestic and international markets. Without them, their market will steadily shrink. Sooner or later, the competition will find a way into the U.S. market, and an outdated product strategy won't slow them down.