Michigan will be hit harder by tariffs than other states — and not just the auto industry

Michigan’s economy is preparing for another shakeup, as tariffs authorized by President Donald Trump’s administration against Canada, Mexico and China go into effect Tuesday.

The administration is implementing a 25% tariff on Canada and Mexico, with the exception of Canadian energy that would face a 10% rate, and an additional 10% tariff on imports from China on top of the previous 10% import tariff applied during the previous Trump administration. Monday, Trump said there was “no room left” for Mexico and Canada to negotiate a reprieve from the tariffs.

Additionally on Monday, Trump said it would impose tariffs on “external” agricultural products starting on April 2. The Canada and Mexico measures were already stalled once, and a host of other Trump levies are due in April.

While Michigan consumers can expect to see higher prices on products from China, it’s Michigan’s business class that will suffer under the tariffs on its allies to the north and south.

Manufacturing-centric Michigan is more exposed to tariffs than other states.

Automotive remains the most important sector in the state, which has more vehicle manufacturing jobs than anywhere else in the country. More than 9% of Michigan’s gross domestic product is tied to auto — higher than any other state, according to the Alliance for Automotive Innovation.

But it’s not just the auto sector. Many Michigan industries will feel the squeeze from these tariffs, including health care and agriculture.

Trump also uses tariffs as a policy tool rather than an economic one, demanding Mexico stop fentanyl from crossing the southern border of the U.S. and likely wants access to Canada’s ample natural resources. But companies, universally, believe the tariffs are a too expensive strategy and will fall short of creating a stronger domestic market.

Commerce Secretary Howard Lutnick said Sunday that both Canada and Mexico have been working hard on controlling the border but fentanyl was still an issue and the tariffs were contingent on both being resolved.

“They have done a lot, so he’s sort of thinking about right now how exactly he wants to play with Mexico and Canada and that is a fluid situation,” Lutnick said of Trump on Fox News’ “Sunday Morning Futures” show. “There are going to be tariffs on Tuesday on Mexico and Canada, exactly what they are, we’re going to leave that for the president and his team to negotiate.”

The Big 3

Leaders of automotive-tied Michigan are warning about the potentially devastating economic consequences of targeting key trading partners intertwined in the global supply chain of its signature industry.

Ford Motor Co. CEO Jim Farley said tariffs of that magnitude would “blow a hole in the U.S. industry that we have never seen” as the auto industry has for decades been built up around Mexico, where General Motors Co., Ford Motor Co. and Stellantis NV operate around a dozen plants.

Canada, too, is an integral part of operations for the Detroit 3 automakers. Engine and assembly plants churn out products that move from Canada into the U.S., often through Detroit via the Ambassador Bridge and soon over the $4.7 billion Gordie Howe International Bridge that is being built to help bolster Canada-U.S. commerce.

Stellantis Chairman John Elkann also voiced his opposition, saying products built in Canada and Mexico “should remain tariff-free.” GM CFO Paul Jacobson said the Detroit-based automaker can manage levies in the short term but “can’t be whipsawing the business back and forth.”

Automakers have some room to flex final assembly production in the short term, but their supply chains are not so agile. Many of the 30,000-plus globally sourced parts and components that make up a car cross back and forth over borders several times before being bolted onto finished vehicles.

University of Michigan economists predict that new steel and aluminum tariffs will cut employment in transportation equipment manufacturing in the state by about 600 jobs through 2026.

Auto suppliers

Many of the world’s largest auto suppliers depend on Mexico for manufacturing, especially for labor intensive production such as wire harnessing and sewing and stitching.

For Southfield-based seating and electronics supplier Lear Corp., the exposure is massive. The company imported $2.9 billion of parts — 13% of its annual revenue — from Mexico to the U.S. last year, executives disclosed on a call with investment analysts in early February. Add $725 million on top if the 25% levy is imposed.

The impact of tariffs, which supplier executives have made clear must be passed onto automakers, is so potentially massive and uncertain that most auto companies refrained from factoring it into their financial guidance.

“This is going to be an industry issue,” Lear CEO Ray Scott told analysts. “I realized, talking to the executives from the customers, that they have choices. And one of them might be that they may have a pass on and then hope that they can get it from the end customer, which doesn’t really seem reasonable, or they can shut down or try to run their business intermittently for as long as they can. But I think at the end of the day, it’s going to lead to a lot of shutdowns and a lot of intermittent downtime.”

Tariffs could result in an $8,000 cost increase on a pickup truck assembled in North America, according to East Lansing-based economist Patrick Anderson. A battery electric crossover could cost an additional $12,000.

Those costs would be absorbed by the consumer — but only as the market will bear. Jacking up the prices of already expensive vehicles could erode Detroit 3 market share. The 4 million vehicles imported to the U.S. by Japanese, South Korean and European automakers theoretically would not be subject to Trump’s tariffs, as Stellantis’ Elkann pointed out during an earnings call recently.

Health care

Michigan’s hospitals rely heavily upon cheap imported products from China, such as single-use blood pressure cuffs, stethoscope covers and sterile drapes, gowns, gloves, face masks, respirators and other equipment, according to the Michigan Health and Hospital Association.

The additional 10% import tariff is likely to cost hospitals, which are already strapped for cash, for products where U.S. substitutes aren’t readily available in the supply chain.

That will translate to higher medical expenses for Michiganders, MHHA CEO Brian Peters said in an emailed statement to Crain’s.

“Implementing tariffs on Canada, Mexico and China without exceptions for medications and medical supplies could jeopardize the availability and further increase the prices of already-expensive vital medications and health care devices Michigan hospitals need to provide appropriate patient care,” Peters wrote. “Tariffs will particularly exacerbate existing pharmaceutical shortages. China is responsible for providing a significant number of cardiac and oncology drugs, as well as active pharmaceutical ingredients needed to produce prescription drugs domestically. Many health care supplies are also produced in China and the United States does not have existing capacity to meet an increased demand for product.”

The American Hospital Association last month put in a request to the Trump administration to grant exemptions to the tariffs for critical medical suppliers and pharmaceuticals.

Hospitality

Hospitality veteran Chris Johnston is one of the owners of WABCo, which owns and operates Ferndale businesses Woodward Avenue Brewers, music venue Loving Touch and bar Cvrses on the ground floor of the Woodward Avenue Brewers building at 22646 Woodward Ave.

Johnston said he doesn’t believe the tariffs will affect his group more than any other. He understands, though, that any potential price increases will trickle down to patrons.

“It could present some problems,” Johnston said. “But these things are going to happen. You look at what the pandemic did to construction costs. You just have to hope you can find a way to get through it, and that it’s not as painful as it could be.

“You can’t really change it. I hope customers are understanding, but a lot of us will have to suck it up. There could be a lot of changes that affect a lot of people.”

Agriculture and food products

Michigan is also a large exporter and importer of agricultural products and foods from Canada and Mexico.

The state imports around $1.5 billion in agricultural and food products annually from Canada alone, according to Michigan State University. Much of our fruit and vegetables also come from Mexico.

Canada and Mexico buy 66% of all of Michigan’s exported products. In 2023, Michigan exported nearly $65 billion of products, meaning about two-thirds of that total were paid by importers in Mexico and Canada.

It’s unclear how Mexico, Canada and China plan to respond, but retaliatory tariffs are likely.

China has already targeted U.S. exports, slapping a 25% tariff on U.S. soybeans in 2018 during the last Trump administration in response to U.S. tariffs. Those tariffs cost U.S. farmers $26 billion in export losses through 2019 alone.

And Michigan is a major exporter of soybeans to China as its more than 1.4 billion people consume more soy than it can produce.

The National Soybean Association projected a nearly 52% decline in soybean exports due to the trade battle — that’s equal to a loss of nearly $100 million for Michigan farmers annually.

Canada and Mexico are also major importers of agricultural products, such as corn, from Michigan. Retaliatory tariffs on those products would impact Michigan farmers quickly.

The Trump administration tempered farmers’ trade plight the last go around with $32 billion in bailout funds. So far this time there hasn’t been public discussion of payments to farmers over tariff losses.

— Crain’s Detroit Business reporter Jay Davis and Bloomberg reporter Josh Wingrove contributed to this report.

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