Trump's 25% tariffs are an existential threat to Canada's auto industry

DETROIT – There is growing concern that President-elect Donald Trump's plan to impose 25% tariffs on Canadian imports is an existential threat to the recovery of the country's auto industry.

The potential tariffs on vehicles and auto parts are particularly alarming for the province of Ontario, the epicenter of Canada's auto industry. Five car manufacturers Ford engine, general motors, stellantis, ToyotaEngine and HondaEngine – produced 1.54 million light vehicles last year in the province, largely for American consumers.

“It would be terrible. It would not only devastate Canadian jobs, but American jobs as well,” Ontario Premier Doug Ford told CNBC during a phone interview.

A tariff is a tax on imports, or foreign goods, brought into the United States. They are paid for by companies, which some fear would simply pass on any additional costs to consumers.

Ford, who said he has not spoken directly to Trump, argued that any tariff would be harmful to both sides of the border.

He said raw materials and parts routinely pass across the border several times before being used in the final assembly of a vehicle. He warned that tariffs would raise prices, which could slow production and eliminate jobs.

“We have a trade agreement right now. Things have been working,” Ford said. “I have said it publicly: I would love to reach a bilateral trade agreement with the United States. And Mexico wants a trade agreement, we will do a bilateral trade agreement with Mexico. But Mexico, if it wants a seat at the table, they have to follow the rules “

Trump has said he will impose an additional 10% tariff on products from China and a 25% levy on Canada and Mexico, although he has offered few details, such as whether there would be exceptions. He said he plans to invoke “national security” concerns to implement such increases, rather than seek congressional approval, saying illegal immigration and illicit drug trafficking are causing concerns at the border, justifying the tariffs.

Placing tariffs on components could add between $600 and $2,500 per vehicle in parts from Mexico, Canada and China, according to estimates in a Wells Fargo analyst note. Prices for vehicles assembled in Mexico and Canada, which account for about 23% of vehicles sold in the United States, could rise by between $1,750 and $10,000.

Such tariffs and higher costs would add to the woes of embattled Canadian Prime Minister Justin Trudeau as he rejects calls for his resignation.

Ontario recently launched a multimillion-dollar advertising campaign in the United States to promote its role as a key trading partner and “ally of the North.”

Ontario, as a province, is the third largest trading partner of the United States, including the largest foreign trade partner of 17 states, according to Ford, the premier. He notes that trade between Ontario, as well as Canada's trade in general with the United States, is much more evenly divided than with Mexico, especially when the oil that Canada ships to the United States is removed.

Canadian auto parts exports totaled $23.5 billion in 2023, while light vehicle exports totaled $53.5 billion. Imports totaled $47.5 billion and $70.4 billion, respectively, according to Canada-based DesRosiers Automotive Consultants. Of these, the United States accounts for 95.3% of Canada's total automobile exports and 57.7% of its total automobile imports.

“Anything that upsets that balance will affect both sides of the border,” said Flavio Volpe, director of the Canadian Automotive Parts Manufacturers Association. “The best tariff level for Canadian and US auto parts suppliers is zero.”

Volpe argues that a double-digit tariff would be “existential”, with knock-on effects on the US auto industry. As an example, he pointed to the year 2022, when Canadian truckers blocked the Ambassador Bridge between Detroit and Windsor, Ontario, in Canada, the busiest border bridge between the countries, disrupting manufacturing for several automakers in the U.S.

Toyota is the highest-producing automaker in Canada, with approximately 526,000 units in 2023, followed by Honda with almost 378,500 vehicles. GM, once Canada's largest producer with more than 1 million vehicles, is now one of the smallest light vehicle manufacturers in the region.

The Canadian auto industry is booming after a decades-long slump that intensified during the coronavirus pandemic.

Light vehicle production in Canada reached 1.54 million vehicles last year, down from a recent low of 1.1 million in 2021, but still a 47% decline from the country's high of 2.9 million in 2000, according to industry data provided by Global Automakers. of the Canadian Trade Association.

“The industry, like the American industry, has had a difficult time recovering from the pandemic. We are not there yet from a sales and production standpoint, but we have been recovering,” said David Adams, president of Global Automakers of Canada. , which represents the interest of 16 automakers outside the United States.

The rebound comes even though two large assembly plants in Ontario, owned by Ford and Stellantis, exist in limbo as the factories currently have no vehicles to produce. Thousands of workers have been laid off as a result of lack of production.

Much of the uncertainty was caused by the auto industry's transition to all-electric vehicles, as adoption of electric vehicles has not occurred as quickly as expected. Trump has also promised to eliminate subsidies for the purchase of electric vehicles, which have helped spur sales while federal benefits still exist.

“There is deep concern for the Canadian auto industry because it is not clear which direction to take,” said Charlotte Yates, president of the Center for Automotive Policy Research and professor emeritus at McMaster University. “There are a number of changes in public policy as well as changes in political attitudes and of course the threat of tariffs really shakes up the industry in Canada.”

Ford, the premier of Ontario, said the United States and Canada should work together, as they have for decades.

“We should be focusing on China and Mexico, not their closest ally around the world,” Ford said. “Let's build a fortress, an American-Canadian fortress against the rest of the world. They can't stop us if we stick together.”