GM Tariff Doubling: History Says It's Manageable

On Monday, President Trump announced that tariffs on Canadian cars, trucks, auto parts, and steel will rise to 50% starting January 1, 2027. This doubles the current 25% tariff on Canadian-built vehicles, which has been in place since spring 2025. The announcement comes amid escalating trade tensions, with a separate 50% tariff on $20 billion of Canadian goods already in effect and Canada planning retaliation from September 8.

General Motors (GM) saw its stock slip only about 1% on the news, while Ford and Stellantis each fell more than 3%. This muted reaction suggests investors are not overly concerned about GM's ability to handle the tariff increase, possibly because they've seen GM navigate a similar situation before.

In the spring of 2025, when 25% tariffs were first imposed, GM cut its full-year guidance to account for a potential $4 billion to $5 billion hit. The early costs were heavy, with $1.1 billion in tariff expenses in Q2 2025 alone, causing core profit to drop 32% year over year.

However, the final bill came in at $3.1 billion for 2025, well below the original forecast. Management offset more than 40% of the gross cost through pricing and manufacturing adjustments, and GM still earned $12.7 billion in adjusted operating profit for the year.

Now, with the tariff doubling, GM expects $2.5 billion to $3.5 billion in gross tariff costs for 2026, similar to 2025. Despite this, the company has raised its profit guidance twice, most recently to $14 billion to $16 billion in adjusted operating profit, partly due to expected tariff refunds from a Supreme Court ruling.

The tariff increase matters because it directly impacts GM's cost structure and profitability. However, GM has demonstrated a pattern of underestimating its ability to manage tariffs. In 2025, it forecast up to $5 billion in tariff costs but only incurred $3.1 billion, offsetting over 40% through pricing and manufacturing adjustments. This track record suggests the 2027 tariff increase might be similarly manageable.

GM has also been proactively reducing its Canadian footprint. Production at its CAMI plant in Ontario was suspended in May 2025, and the BrightDrop electric van built there was discontinued. In January, GM cut a third shift at its Oshawa plant, laying off about 500 employees, though it still builds Silverado pickups there on two shifts and has committed additional investment for next-generation trucks.

Notably, Toyota and Honda together account for about 77% of Canada's vehicle production, with each building more vehicles in Canada than Ford, GM, and Stellantis combined. This means the 50% tariff hits Japanese automakers harder, potentially giving GM a competitive advantage.

GM's stock, at about $86, trades at roughly 6 times next year's expected earnings, which already factors in persistent tariffs. If the 2027 round plays out like 2025, GM's own cost forecasts may again prove too high, leading to positive earnings surprises.

However, the escalating trade war could have broader implications, including higher parts costs and Canadian retaliation, which could affect GM in ways the 2025 round didn't. Investors should weigh GM's historical resilience against the risk of a wider trade conflict.