Donald Trump’s proposed 25% tariffs on Mexico and Canada are unlikely to be enforced due to their effect on US industry and consumers, RBC Capital Markets analysts believe.

Earlier this week, US President-elect Trump promised to slap a 25% tariff on Canada and Mexico as one of his first executive orders in January. “This tariff will remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop this invasion of our country!,” he wrote on his Truth social media.

Mexican President Claudia Sheinbaum says Mexico would respond with retaliatory tariffs, warning this trade war threatens “common businesses” and cause inflation and job losses in both countries. 

“Mexico’s main exporters to the US are General Motors, Stellantis and Ford Motors Company, which came to Mexico 80 years ago,” she notes. “Why put a tax on them that puts them at risk?”

Canada’s Prime Minister, Justin Trudeau, has not yet said whether Ottawa plans retaliatory tariffs, but says he had a “good” conversation with Trump after the post.

“We talked about how the intense and effective connections between our two countries flow back and forth,” The Guardian quoted Trudeau as saying. “We talked about some of the challenges that we can work on together.”

During the first Trump administration, threats to impose tariffs on Mexico never became a reality, Kallanish writes.

According to Tom Narayan, lead equity analyst, Global Autos at RBC Capital Markets, GM is the most exposed to US tariffs on Mexico, although OEMs can address it by shifting production to domestic plants. However, this may be more difficult for suppliers.

“In any event, just as we saw in the first Trump administration, we don’t think tariffs on Mexico will ever actually ever be enforced,” Narayan says in a note. “The spectre of car price inflation, potential to cause damage to the US auto industry and important domestic jobs, will likely prove this to be more talk than actual action.”

“Given how reliant the US auto industry is on Mexico, we doubt tariffs will actually ever be enforced. This is especially true considering how optically bad it would be for new car price inflation to pick up again,” Narayan reiterates.