At Cloud Theory, we have a unique view of real-time supply and demand in the automotive marketplace, and we comment regularly about the impact that industry dynamics have on issues such as pricing and sales velocity.
In fact, we published a post just days ago about uniformly high vehicle prices that consumers are facing despite a growing inventory and flatter demand picture, driven by factors such as general inflation, the discontinuation of numerous small sedan and SUV models, and OEM emphasis on higher-priced/higher-profit segments, models, and trims.
Source: Cloud Theory 2025
News over the weekend—that looming tariffs against Canada and Mexico (and China) have now been enacted—adds another layer of uncertainty to an already challenging pricing environment, and OEMs and parts suppliers on both sides of the border must now contend with the fallout.
In the short term, costs of vehicles are now at risk of going even higher, with tariffs being passed through the system and ultimately to the consumer. Numerous articles, such as one posted on the ABC News website, point to the almost immediate impact that these tariffs will have on prices of cars and trucks produced in those countries, as well as on parts coming into the United States.
The longer-term impact could be even more profound, particularly if these initial salvos are met with return fire and accelerating retaliation on each side. Canada and Mexico have already signaled that they will respond and continue to react as developments unfold. If these actions escalate, the automotive supply chain could be detrimentally affected if parts suppliers determine that the cost of doing business in the U.S. is too high. And as we learned in the post-pandemic period of 2021 and 2022, a small number of crucial parts can bring production lines to a standstill, which could push prices even higher if the recent inventory recovery is compromised as a result.
If these initial tariffs are simply a negotiating tactic to extract concessions from our North American neighbors, the duration and impact would be more temporary and limited. But if this is a signal of a broader economic philosophy that will also encompass other regions such as Europe, then the effects of these policies could be profoundly long-lasting and extreme.
The ultimate outcome cannot be foreseen, but the consequences of an escalating trade war are evident.
We will continue to monitor the supply, demand, and pricing dynamics of this important issue as events unfold.
