The automotive industry is once again bracing for a seismic shift as President-elect Donald Trump prepares to take office on January 20. At the forefront of industry concerns are Trump’s proposed tariffs—most notably, a sweeping 10% tariff on global imports and a staggering 60% tariff on goods from China. These policies, if implemented, could force automakers and suppliers to rethink their production and sourcing strategies on a massive scale, disrupting global supply chains and reshaping the industry’s footprint.

During the CES tech conference in Las Vegas, industry leaders, including major suppliers like Bosch, Continental, and Panasonic, revealed plans to localize production closer to the U.S. in an effort to avoid the financial burden of the looming tariffs. With years of U.S. protectionism already shaping the industry, these new threats add fresh urgency to efforts to future-proof supply chains.

The Challenge of High Tariffs

The scale of the proposed tariffs is alarming for global suppliers. A 25% tariff on imports from Canada and Mexico, along with a 60% tariff on Chinese goods, would make it nearly impossible to profitably sell many auto parts in the U.S. market. Passing these costs on to consumers would be impractical, leaving suppliers scrambling for alternatives.

Paul Thomas, North American president for Bosch, emphasized the importance of acting quickly. “Anyone can do the math,” Thomas said. “If it’s 10%, 20%, 60% [tariffs]… you have to say, ‘OK, how many scenarios make sense for that and which ones do we act on?’”

Bosch has already started exploring options to relocate production from low-cost markets like Malaysia to countries where they already have an established footprint, such as Mexico and Brazil. While no significant decisions will be made until after Trump takes office, Bosch’s proactive stance underscores the urgency of preparing for potential disruptions.

Localizing Supply Chains

The industry has been moving toward localization for years. The COVID-19 pandemic and subsequent supply chain shocks underscored the need to minimize reliance on far-flung suppliers. More recently, President Biden’s Inflation Reduction Act (IRA) incentivized suppliers to invest in U.S.-based operations, especially for electric vehicle (EV) components. Trump’s proposed tariffs, however, are pushing the need for localization into overdrive.

Nikolai Setzer, CEO of German supplier Continental, shared that the company is already more localized than many of its competitors but is actively looking at alternative component sources in North America. “Wherever we can further localize, and it makes sense, we will do it,” Setzer said.

Honda, which exports roughly 80% of its 200,000 vehicles produced annually in Mexico to the U.S., is also evaluating its options. Depending on the tariff levels, Honda may consider relocating production from Mexico to Japan or another location.

Panasonic’s Push to Eliminate Chinese Content

For some suppliers, the possibility of higher tariffs on Chinese goods has accelerated plans already in motion. Panasonic Energy, which supplies EV batteries to Tesla, is fast-tracking its efforts to eliminate Chinese content from its U.S.-made batteries.

Allan Swan, Panasonic Energy’s North American president, stated that while Chinese materials currently represent a small portion of the company’s supply chain, the goal is to remove them entirely. “Not to have the supply chain dedicated from China—that’s the No. 1 objective,” Swan said.

To achieve this, Panasonic has been forging supply agreements with North American companies such as Novonix, a synthetic graphite anode materials producer, and Nouveau Monde Graphite, a Canadian natural graphite manufacturer.

The Broader Context of U.S. Protectionism

The threat of new tariffs comes after years of U.S. protectionist policies under both Trump and Biden. During Trump’s first term, threats of tariffs were often used to pressure automakers into building more in the U.S. One notable example was Toyota’s 2017 announcement to build the Corolla sedan in Mexico, which Trump strongly criticized. Within a year, Toyota shifted plans, investing in a $1.6 billion Alabama factory in partnership with Mazda, marking a significant victory for Trump’s approach.

The Biden administration’s approach leaned more on incentives than penalties, with the IRA spurring a wave of investment in U.S. EV production. However, Trump’s proposed dismantling of parts of the IRA and return to punitive tariffs signals a potential shift back to a more confrontational style of economic policy.

What’s Next for Auto Suppliers?

The automotive industry is once again at a crossroads. While many suppliers are taking a “wait-and-see” approach until Trump officially takes office, the need for localized production is becoming increasingly urgent. Suppliers and automakers are preparing contingency plans to shift production closer to the U.S., with Mexico, Brazil, and North America emerging as key hubs for reconfigured supply chains.

The reality is clear: tariffs of this scale would fundamentally alter the cost structure of automotive production, forcing suppliers to reimagine their operations. For global suppliers like Bosch, Continental, and Panasonic, the challenge is not just to adapt but to do so quickly enough to remain competitive in a rapidly changing landscape.

As the industry braces for another wave of disruption, one thing is certain—localization is no longer just an option; it’s a necessity. Whether Trump’s proposed tariffs materialize or not, the shift toward regionalized production is set to define the next chapter of the global auto industry.