U.S. President-elect Donald Trump pledged to impose a 25% tariff on Mexico and Canada on his first day in office.

Mexico’s President Claudia Sheinbaum responded angrily, warning that the penalties would only wind up causing inflation and unemployment in the U.S.

Mexico is the top U.S. trading partner, and Canada is not far behind. More than $1.5 trillion worth of goods are exchanged annually among the three North American nations. Mexico’s top exporters included U.S.-based automakers General Motors and Ford Motor Company, which have built sprawling modern production facilities around the country.

Trump's latest tariff pledge sent shivers through the U.S. auto industry, which depends heavily on both countries for parts and manufacturing.

The North American car industry has operated for decades as if the continent is one giant country, thanks to free trade agreements signed by presidents from Bill Clinton to Trump himself. Parts and whole vehicles have flowed freely across borders, sometimes multiple times, before they end up in an American dealership.

The prospect of tariffs “is a two-alarm fire for the auto industry,” said Patrick Anderson, chief executive of Anderson Economic Group, a consulting firm in Michigan. “There is probably not a single assembly plant in Michigan, Ohio, Illinois and Texas that would not immediately be affected by a 25 percent tariff.”

The list of popular vehicles made in Mexico or Canada includes Ram pickups made by Stellantis in Saltillo, Mexico, and Chrysler minivans built in Windsor, Ontario. General Motors makes Chevrolet Silverado pickups and electric versions of Equinox and Blazer SUVs in Mexico, where Ford also makes its Maverick pickup.

Separately, Trump outlined “an additional 10% tariff, above any additional tariffs” on imports from China. He has previously pledged to end China's most-favored-nation trading status and slap tariffs on Chinese imports in excess of 60% - much higher than those imposed during his first term. Trade between the U.S. and China amounts to $600 billion annually.

U.S. fasteners and automotive products suppliers have prepared for months for this outcome.

Executives at auto parts retailer AutoZone told investors in October that they were prepared for products they import from India, China and Germany to become more expensive.

“If we get tariffs, we will pass those tariff costs back to the consumer,” Philip Daniele, CEO of AutoZone, said on a recent earnings call. “We’ll generally raise prices ahead of — we know what the tariffs will be — we generally raise prices ahead of that.”

Likewise, Stanley Black & Decker CEO Donald Allan told investors his company would probably “have to do some surgical price actions” to offset any new tariffs.

“Obviously, coming out of the gate, there would be price increases associated with tariffs that we put into the market,” Allan said, adding that “there’s usually some type of delay given the processes that our customers have around implementing price.”

Allan also said the company would consider moving its production out of China and to other countries, such as Mexico, to reduce the impact of a 60% tariff on Chinese imported goods.

Automotive suppliers are not alone. U.S. companies that rely on foreign suppliers plan to raise prices in response to the import tariffs that Trump has promised.

Some companies placed large import orders to stock up in the months leading up to the election. The U.S. imported 11% more Chinese goods in July and August of this year than during the same two months in 2023, according to the Census Bureau.

Other companies hope to avoid the heaviest levies by shifting to suppliers outside China.