The United States is diverging from automotive markets in Europe and Asia as federal policy shifts toward protecting domestic manufacturing with import tariffs while easing pressure on automakers to electrify.

¶ The result: an increasingly isolated U.S. auto industry facing higher costs and fewer opportunities to compete in global markets.

¶ “The U.S. auto industry is retreating to what we call a ‘Fortress America’ mindset,” said Meghan Ostertag, an economic policy analyst with the Information Technology and Innovation Foundation, a nonpartisan think tank. “It is doing everything possible to stay competitive in the United States, but in that process, it is losing its ability to compete with China, Japan, Germany and the rest of the world.”

President Donald Trump’s decision to levy tariffs on imported vehicles and parts — including on Canada and Mexico, which long benefited from North American free trade — has cost the auto industry billions of dollars since 2025. The tariffs forced companies to reevaluate their supply chains and led to higher parts and raw materials costs.

At the same time, electric vehicle restructuring has cost automakers tens of billions of dollars. U.S. automakers and suppliers have pulled back on investment and production because of the end of U.S. consumer incentives that exacerbated smaller-than-expected EV demand.

These policy changes will make the U.S. less competitive worldwide, especially as Chinese EV makers continue to make inroads in global markets — including Canada and Mexico, experts say. Electrification is expanding significantly faster in other regions, which could cause the U.S. to lag international rivals in a crucial advanced technology.

“As the U.S. pulls back from EV production and focuses on internal combustion engine vehicles, we’re just going to continue to see a growing gap between what U.S. auto firms are able to do versus what we’re seeing competitors do,” Ostertag said.

For now, automakers are leaning heavily on gasoline-powered SUVs and pickups in North America to boost margins as costs rise.

“Of course you want to make hay while the sun shines,” said Mark Wakefield, global automotive market lead at AlixPartners. “They want to pivot and profit off the much more profitable large vehicles and ICE vehicles.”

The July review of the United States-Mexico-Canada Agreement likely will have a massive impact on how North American auto manufacturing evolves.

Automakers and suppliers hope extending the free-trade pact will buy the North American auto industry time to catch up with China on EVs in the long term while reducing tariff burdens in the short term.

“The best-case scenario is something works out that does put higher walls to Chinese content and allows the North American market to function as it was intended, having a free-flowing opportunity in one big market,” Wakefield said.

The U.S. auto industry benefits from auto manufacturing in Canada and Mexico and can leverage it to become more competitive globally, Ostertag said.

“The current administration is very keen to believe the United States can do everything on its own, and that’s just simply not true,” she said. “The U.S. really benefits from the partnerships it has with the USMCA.”

In comments to the federal government, automakers and suppliers said extending the USMCA is crucial to the U.S. auto industry being globally competitive moving forward.

“If that remains a trilateral agreement that supports a fortress North America, that allows this industry to win in the United States and compete around the world, I think that sets a good signal for the near term and the midterm,” John Bozzella, CEO of the Alliance for Automotive Innovation, said at the Automotive News Global Outlook panel during the New York International Auto Show in April.

EV pullback

Global vehicle platforms are becoming more difficult to justify because of contrasting emissions rules across the U.S., Europe and China, along with the slower pace of EV production in the U.S., said Michael Robinet, vice president of forecast strategy at S&P Global Mobility.

Because of that, U.S. automakers risk a drop in vehicle exports worldwide. The market for large, gasoline-powered vehicles that are popular in the U.S. is smaller in other regions, Robinet said. That could cut into annual production levels, he said.

“Eventually, as technology continues to move forward, it means that since we’re not incentivizing it or supporting it as much as other regions are, we run the risk of our exports becoming more difficult over time,” Robinet said.

Provisions in recent deals the Trump administration struck with trading partners are designed to increase U.S. exports. The EU, Japan and South Korea agreed to accept U.S. safety standards as part of the deals, which included lower U.S. tariff rates for vehicle imports.

But exports to those markets are likely to be limited as U.S. automakers emphasize production of pickups and SUVs popular at home, Robinet said.

There is not high demand for those vehicles, he said.

“No amount of us wishing everybody will buy a full-size pickup truck in Japan is going to make that happen,” Robinet said.

U.S. tariffs

The Trump administration aims to lure auto production from other markets with auto tariffs.

About 56 percent of vehicles sold in the U.S. in 2025 were made in the country, according to S&P Global Mobility, while about 78 percent were made in North America as a whole.

That compares with 54 percent of vehicles sold in 2024 being made in the U.S., with about 77 percent made in North America.

Supply chain localization also will continue as automakers strive to become more resilient in the face of geopolitical risks, analysts said. More than 60 percent of suppliers are considering reshoring parts production to the U.S., according to MEMA Original Equipment Suppliers, which represent U.S. parts makers.

But parts reshoring could be limited somewhat if EV production does not pick up in the region. Injection molding, for example, is “particularly well-suited” for more U.S. manufacturing, according to a November report from consulting firm Arthur D.

Little commissioned by MEMA. But the “strongest reshoring candidates” in molding were for EV-related components.

Automakers may be reluctant to open plants in the U.S. In some cases, they can shift vehicle production to U.S. factories with excess capacity to reduce their tariff bills. And companies could open new plants if their U.S. capacity is maxed out, as Toyota might with a potential $2 billion plant in Texas.

But a wave of new assembly plants is unlikely anytime soon, Robinet said.

Automakers are hesitant to make major investment decisions amid long-term uncertainty on trade, especially given this year’s review of the USMCA, he said. And existing assembly plant capacity in the U.S. supports production for a market that regularly topped 17 million new-vehicle sales in the late 2010s, a level analysts do not expect the market to hit again for years.

“We are not in any way close to getting to that number over the next decade,” Robinet said. “OEMs are not going to spend money building plants when they already have capacity.”

This is a crucial moment for the U.S. auto industry, Ostertag said, likening the rise of Chinese automakers to the ascent of Japanese companies in the 1980s and 1990s. The U.S. industry cannot afford to continue on its current trajectory and hope to be globally competitive, she said.

“We’re seeing the U.S. really struggling to adapt to this new world,” Ostertag said. “The United States can’t continue to retreat.”

THREE-PART SERIES

May 18: How tariffs and USMCA reorder trade.

May 25: Possible outcomes of the USMCA review. How suppliers and dealers prepare.

June 1: In a global lens, has the U.S. isolated itself?