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President-elect Donald Trump's proposed tariffs on Mexico and Canada would drive up the price of cars assembled in the US by an average of $2,100, according to estimates made by analysts at Wells Fargo.
"Autos are stuck in the middle of Trump's geopolitics," the analysts said in a note on Wednesday, per Fortune.
On Monday, Trump said that he would sign an executive order on his first day back in office imposing a 25% tariff on all goods coming from Canada and Mexico.
He said the tariffs would "remain in effect until such time as Drugs, in particular, Fentanyl, and all Illegal Aliens stop this Invasion of our Country!"
However, the tariffs would have ramifications beyond just Mexico and Canada.
If enacted, the tariffs would have a strong impact on the US top three automakers — General Motors, Stellantis, and Ford Motor Company — due to their reliance on foreign parts sourcing and Mexican imports, Wells Fargo said.
About 76% of the vehicles manufactured in Mexico are exported to the US, making nearshoring a key part of the US automaking industry.
Wells Fargo's estimates came a day after Mexico's President Claudia Sheinbaum Pardo said her country would impose its own tariffs in response to any from the US.
During a press conference on Tuesday, Sheinbaum said that "one tariff will be followed by another, and so on, until we put joint ventures at risk."
She also pointed to General Motors, Stellantis, and Ford as Mexico's main exporters to the US and as businesses that tariffs could endanger.
Colin Lewis, emeritus professor of Latin American economic history at the London School of Economics, told BI that tariffs are part of Trump's strategy to "bring jobs back home."
However, he said doing so may be more difficult than Trump expects due to massive US investments in Mexico.
On Wednesday, Mexico's economic minister, Marcelo Ebrard, said tariffs would effectively double the taxes paid by US firms producing in Mexico, and lead to the loss of 400,000 jobs in the US.
Ebrard estimated the price of pickup trucks from the top three US car manufacturers — 88% of which are imported from Mexico — would rise by an average of $3,000, describing the move as a "shot in the foot."
The Wells Fargo analysts said that prices in the US from vehicles entirely produced in Canada and Mexico would increase by $8,000 to $10,000, potentially resulting in a big hit to the earnings of Detroit's big three automakers.
"All in, we see ~$5 billion to $9 billion in EBIT risk for the D3 before pricing or plant closures," they wrote.
