Toyota’s Shift to U.S. Stokes Fears for Mexico’s Auto Industry

Mexico’s automotive sector, long the backbone of its manufacturing economy, is facing growing anxiety following Toyota Motor Corp.’s announcement that it will move production of its popular Tacoma pickup truck out of Mexico and into a new facility in Texas. The decision comes at a critical moment, as trade relations between the United States and Mexico enter a period of heightened uncertainty, raising fears that this could be just the beginning of a much larger shift in regional production.

The root of the concern lies in a major change to trade policy: Last week, U.S. President Donald Trump opted against a long-term renewal of the United States-Mexico-Canada Agreement (USMCA), instead pushing for the trade pact to be reviewed and renegotiated on an annual basis. This move has stripped away the long-term predictability that automakers rely on to plan investments, and has set off alarm bells across the Mexican industry.

A Domino Effect in the Making?

According to industry insiders, who spoke on condition of anonymity, major automakers with operations in Mexico are already reviewing backup production plans, scaling back output projections, and re-evaluating future expansion projects. The goal is to avoid being caught off guard by shifting tariffs and changing rules of origin requirements.

“It is no coincidence that this announcement comes so soon after the U.S. rejected a long-term extension,” said Gabriela Siller, Director of Economic Analysis at Banco Base. “If even a company like Toyota, which has a strong track record in Mexico and already uses a high share of U.S.-made parts, decides to relocate, it sends a strong signal. There is a real risk of a domino effect, where more brands follow suit to protect their competitiveness.”

For Mexico, the stakes could not be higher. The automotive industry accounts for 4.5% of the country’s total GDP and is the largest contributor to its export economy. Any significant reduction in production or investment could deal a heavy blow to an economy already struggling with slow growth and high inflation.

Siller adds that the pressure is already visible in trade figures: So far this year, vehicle exports from major manufacturers including BMW, Audi, and Nissan have seen notable declines, suggesting the shift in strategy is already underway.

Trade Rules and Tariffs: The Driving Force

Under the current system, vehicles manufactured in Mexico can enter the U.S. market duty-free only if they meet strict USMCA requirements, including a minimum percentage of regional content and specific labor standards. If they fall short, they face tariffs of up to 25%.

However, the situation is becoming more complex. According to internal documents reviewed by Bloomberg, the average effective tariff applied to Mexican-built vehicles entering the U.S. now stands at nearly 19% higher than the 15% rate applied to imports from countries like South Korea and Japan. With the agreement now subject to annual negotiations, there is no guarantee these terms will remain stable, or that requirements will not become even stricter.

This uncertainty is pushing automakers to rethink their supply chains. Since last year, several companies have been studying two options: moving assembly lines closer to the U.S. market or restructuring their supplier networks to source more components from within the United States.

Toyota’s Move Is Part of a Wider Trend

Toyota is far from the only company making changes. The shift toward U.S.-based production has been building for some time:

• General Motors has announced plans to build new capacity in the U.S. for its Chevrolet Blazer and Equinox SUVs, both of which are currently produced in Mexico.

• Hyundai Motor Group has shifted some production of its Tucson SUV from Mexico to the U.S., while also forming a dedicated “tariff task force” to increase its use of American-made parts.

• Nissan has already stopped exporting its Versa sedan from Mexico to the U.S. market, and has discontinued two other models, the Infiniti QX50 and QX55, which were largely built for American buyers.

Toyota itself emphasized that its decisions are long-term in nature, but acknowledged the influence of policy changes. “While we are impacted by evolving trade policies, our investments are multi-decade decisions based on broader strategic goals, our commitment to build where we sell, and exceeding customer expectations,” the company said in a statement.

President Trump, meanwhile, has framed the moves as a victory for his economic agenda. Following Toyota’s announcement, he publicly stated that his trade policies and tariffs were the direct reason the company was bringing more jobs and production back to American soil.

Mixed Outlook: Restructuring, Not Exiting

Despite the growing number of production shifts, not all analysts believe this signals a total withdrawal from Mexico. Some point out that overall vehicle exports from Mexico continue to rise, even as specific models are moved elsewhere.

“I don’t think manufacturers are planning to leave Mexico entirely,” said Julio Ruiz, Chief Economist at Citi Mexico. “Instead, what we are seeing is a strategic restructuring. They are moving certain lines, especially those that face the highest tariff risks or require the most U.S. content while keeping production for other markets or for models that are more cost-effective to build here.”

Still, the industry faces a new reality: The era of low-tariff, long-term stability across North America is being replaced by a more volatile environment. For Mexico, the challenge now is to prove it can remain an attractive place to invest, even as trade rules become more unpredictable.

For automakers, the priority is clear: adapt to the new rules, or risk being priced out of the world’s largest vehicle market.