The tariff effect: Taking charge as labor markets evolve

The evolving tariff environment
The economies of Canada, Mexico, and the United States have grown increasingly interconnected under successive free trade agreements over the last 30 years. Supply chains were designed to crisscross borders as North American firms strategically benefited from the unique advantages of each country. Following a previous round of tariffs in 2018 and supply chain disruptions during the Covid-19 pandemic, many multinational firms doubled down on North America. A new wave of “near-shoring” began as firms invested in new facilities in North America, betting on the benefits of reduced uncertainty with closely knit supply chains entirely based in one free trade bloc.
To the surprise of many observers, North American free trade was jolted by the first of several tariff announcements beginning in January 2025. In the subsequent months, new tariff policies have been expanded, with impacts to almost every country globally.
While the situation continues to evolve, wide-scale tariffs threaten to significantly increase the costs of all goods produced in supply chains that cross borders. Beyond the direct production costs, several successive tariff announcements and pauses have created considerable uncertainty in the global economy, leaving firms unsure of which duties will be imposed on their goods when they are exported to international consumers.
As the opening rounds of tariffs were imposed in North America, the borders of Canada, Mexico, and the United States are areas to look for the first impacts of tariff uncertainty on labor markets. Upon closer inspection, Mercer’s labor market data suggest that labor demand in North America is beginning to shift from Canada and Mexico to the United States in certain sectors.
Take, for example, the North American automotive manufacturing sector. Many cars produced in North America cross borders between Canada, Mexico, and the United States over a dozen times before completion. Under some of the tariff regimes announced in recent months, these cars would be subject to an ad valorem duty every time they cross a border, significantly increasing production costs. (At time of writing, automotive products that are USMCA compliant are not subject to duties under a temporary tariff pause. This pause may be ended at any time.)
It would take years for major manufacturers to insulate their supply chains from tariffs by relocating production within the same borders as their consumers. Nonetheless, North American labor demand for automotive workers is weakening in Canada and Mexico relative to nearby markets in the United States, suggesting firms are beginning to shift their investments to avoid tariffs.
Case study 1: Canada-US
Windsor, Ontario and Detroit, Michigan are located just across the Canada-US border from one another and have two of the most interconnected local economies across an international border in North America. The automotive manufacturing sector is a major employer in both cities, and unfinished cars at various points in the supply chain regularly cross between the two on the Ambassador Bridge.
In recent years, labor demand for automotive manufacturing roles in both cities has followed a similar trend. In some months Windsor has surpassed Detroit in relative growth, while in other months Detroit has surpassed Windsor. In January 2025, however, labor demand in the two cities as measured by active job postings began to diverge notably. While automakers in Windsor reduced their active job postings by 70% between January and April 2025, those same automakers across the border in Detroit accelerated their active hiring by 18%.
The divergence in demand for autoworkers between Detroit and Windsor may indeed be linked to the January 2025 tariff announcements, rather than to idiosyncratic differences between the two cities. Automakers in nearby Lansing, Michigan increased their labor demand by 16% from January to April 2025, similar to automakers in Detroit. Meanwhile just like automakers in Windsor, those in Oshawa, Ontario reduced their labor demand by 36% from January to April 2025.
Comparing Detroit and Windsor, or Lansing and Oshawa, suggests that automakers are beginning to adjust workforce investments to avoid the threat of tariffs. Under the current environment, automakers are incentivized to move their supply chains into countries with large consumer bases to see that fewer of their products are at risk of incurring tariffs.
Case study 2: Mexico-US
Saltillo, Coahuila and Austin, Texas are relatively new labor markets for the automotive manufacturing sector compared to those in Michigan and Ontario. Saltillo is one of many cities in Mexico that benefited from the nearshoring movement, offering relatively low prevailing wages for firms looking to operate near the US border. Austin’s large technology workforce has underpinned a boom in labor demand from automotive manufacturers looking to integrate more software into their products, with Tesla notably opening a large factory there in late 2022.
In the case of Detroit and Windsor, one might expect that automakers would shift their hiring to the locations carrying the lowest tariff risk when faced with similar workers and similar prices. Unlike at the Canada-US border, however, Austin and Saltillo offer very different prevailing skillsets and wages to employers. At comparatively lower tariff rates, the cost advantages of manufacturing in Saltillo may still outweigh the reduced risk associated with moving work north to the United States, leaving labor demand largely unchanged.
Despite the differences in skillsets and wages, labor demand for automotive manufacturers in Austin and Saltillo has generally followed a similar trend in recent years, aside from a staffing boom for Tesla’s new factory in early 2023. As with Detroit and Windsor, there was little evidence in the data prior to January 2025 that the labor demand (measured by active job postings) between the two markets would abruptly diverge.
Like in the Detroit-Windsor data, labor demand for autoworkers has sharply split between Austin and Saltillo since January 2025. Labor demand grew 19% in Austin from January to March 2025, while demand in Saltillo fell 30% over the same period. Labor Data from nearby localities supports this trend, as demand from the automotive sector in San Antonio, Texas grew 36% from January to March 2025 based on active job postings. Measured labor demand for autoworkers was flat over those three months in Monterrey, Nuevo León.
In localities like Saltillo and Windsor, where labor demand is reduced, organizations have an opportunity to capitalize. By maintaining competitive rewards and investing in skill development, firms can attract and retain high-quality employees at improved rates. Conversely, in higher-demand markets like Austin and Detroit, organizations can differentiate their total rewards offerings, leveraging relocation incentives, cost-of-living adjustments, and enhanced benefits to win the war for talent.
Global lessons learned in North American supply chains
Location, Location, Location
In the coming months, firms with the most internationally diversified supply chains can be expected to make strategic hiring decisions similar to those that appear to have been made by automakers in North America. While multinational production cannot be restructured in a matter of months, firms looking to avoid tariff uncertainty have considerable incentives to explore relocating as a strategy to minimize that risk in their supply chains.
In Mercer’s experience, site selection is a highly complex decision which requires careful planning to enable success. Whether standing up a greenfield operation or expanding existing operations, interested firms should carefully consider the data and seek advice to understand clearly the labor market challenges they could face in a major relocation. Firms entering new locations with relatively low prevailing wages, for example, could be shocked to find wages steeply climb in a matter of months if they failed to consider the underlying talent supply and how expanded labor demand could produce increased competition for that talent.
The new environment of tariff uncertainty creates further challenges for firms considering relocation — employers are facing similar challenges and considering the same options. Particularly where local employers operate in different sectors, offering an employee value proposition that differs considerably on tenets such as work flexibility can be a key differentiator.
Case study:
Avoiding pitfalls, capitalizing on opportunities
The resounding lesson for businesses from 2025 is to expect the unexpected. As global economic uncertainty continues to evolve in the coming months, HR leaders in local markets dependent on trade can draft strategies to aim to retain their workforces, minimize tariff-related supply chain risk, and preserve their core business.
Recent advances in technology and data science, particularly in AI, present considerable opportunities to optimize workforce strategies ahead of implementation. Leading HR practitioners have begun to leverage AI models to create a bespoke digital copy of an organization and simulate the impacts of strategic policy interventions on their workforce. These simulations allow firms to see around corners, identifying transformative strategies and compensation policy changes likely to produce positive ROI in a digital world and avoiding or mitigating many of the costs and risks incurred with failed pilots in the real world.
The quickly evolving global economic climate presents risks for all employers, which will ultimately create winners and losers when the dust settles. Now more than ever, agile firms with data-driven strategies will be more prepared for uncertain outcomes and better positioned to be among the winners.
About the authors:
Jamie Uguccioni, PhD., Senior Associate, Workforce Strategy & Analytics
James Trinh, Senior Principal, Career
William Self, Partner & Global Leader, Workforce Strategy & Analytics
Michael Petrucco, Partner, Toronto Career Leader
Mathieu Sauterey, Principal, Workforce Strategy & Analytics
Adam Ghattas, Senior Principal, Workforce Strategy & Analytics