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

DETROIT — Concerns are growing that President-elect Donald Trump’s plan to impose a 25% tariff on Canadian imports poses an existential threat to Canada’s recovering auto industry.

Potential tariffs on vehicles and auto parts are particularly concerning in Ontario, the epicenter of Canada’s auto industry. 5 car manufacturers — ford motor, general motors, major, toyota car and honda car — Last year, the region produced 1.54 million light-duty vehicles, primarily for U.S. consumers.

“It would be devastating. It would devastate not only Canadian jobs, but American jobs,” Ontario Premier Doug Ford told CNBC in a phone interview.

Tariffs are taxes on imported or foreign goods brought into the United States. This tax is paid by businesses, and there are concerns that this could simply result in additional costs being passed on to consumers.

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

He said raw materials and parts regularly cross borders several times before being used in the final assembly of a vehicle. He warned that tariffs could raise prices, slow production and kill jobs.

“We have a trade agreement in place now. Everything is going well,” Ford said. “I have said publicly: I want to have a bilateral trade agreement with the United States. And if Mexico wants a trade agreement, we will have a bilateral trade agreement with Mexico. But if Mexico wants a seat at the table, Mexico wants a seat at the table. , they have to follow the rules.”

President Trump said he would impose an additional 10% tariff on Chinese products and 25% tariffs on Canada and Mexico, but gave few details, including whether there would be exceptions. He said he planned to raise “national security” issues to enact such an increase, saying illegal immigration and illegal drug trafficking are raising concerns about the border and justifying the tariffs.

Tariffs on parts could add $600 to $2,500 per vehicle for parts from Mexico, Canada and China, according to estimates by Wells Fargo analysts. Prices for vehicles assembled in Mexico and Canada, which account for about 23% of vehicles sold in the U.S., can range from $1,750 to $10,000.

Those tariffs and cost increases would add to the problems for embattled Canadian Prime Minister Justin Trudeau as he fends off calls for his resignation.

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

According to Premier Ford, Ontario is the country’s third-largest trading partner, including the largest foreign trade partner of 17 provinces. He points out that U.S. trade, not just with Ontario but with broader Canada, is much more evenly distributed than trade with Mexico. This is especially true when Canada eliminates the oil it sends to the United States.

In 2023, Canada’s auto parts exports reached $23.5 billion, and light vehicle exports totaled $53.5 billion. Imports hit $47.5 billion and $70.4 billion, respectively, according to Canada-based DesRosiers Automotive Consultants. Among them, the United States accounts for 95.3% of Canada’s total automobile exports and 57.7% of total automobile imports.

“Anything that upsets the balance is going to have an impact on both sides of the border,” said Flavio Volpe, president of the Canadian Auto Parts Manufacturers Association. “The highest tariff level for Canadian and U.S. auto parts suppliers is zero.”

Volpe argues that double-digit tariffs would have “existential” ramifications for the U.S. auto industry. As an example, he pointed to 2022, when Canadian truckers blocked the Ambassador Bridge between Detroit, Canada, and Windsor, Ontario, the busiest border bridge between the countries, disrupting manufacturing for several U.S. automakers.

Toyota is Canada’s top producing automaker with approximately 526,000 units sold as of 2023, followed by Honda with approximately 378,500 units. Once Canada’s largest manufacturer of more than one million vehicles, GM is now one of the smallest compact vehicle manufacturers in the region.

Canada’s auto industry is on the rise after decades of decline due to the coronavirus pandemic.

Canada’s light vehicle production hit 1.54 million units last year, up from a recent low of 1.1 million units in 2021, but still below Canada’s peak of 2.9 million units in 2000, according to industry data provided by Global Automakers. This is a 47% decrease compared to the previous year. Member of the Canadian Trade Association.

“Like the U.S. industry, the industry is struggling to recover from the pandemic,” said David Adams, president of Global Automakers of Canada. “From a sales and production standpoint, we’re not there yet, but we’re recovering. “It is,” he said. This represents interest from 16 non-US automakers.

The increase comes despite the fact that two large assembly plants owned by Ford and Stellantis in Ontario are currently in limbo with no vehicles to produce. Thousands of workers were laid off due to lack of production.

Most of the uncertainty stems from the auto industry’s transition to fully electric vehicles, with EV adoption not occurring as quickly as expected. Trump also pledged to eliminate subsidies for EV purchases that helped boost sales while the federal benefit still existed.

“There are deep concerns about the Canadian auto industry because it is not clear what direction to take,” said Charlotte Yates, professor emeritus at McMaster University and director of the Center for Automotive Policy Research. “There is a series of public policy changes, as well as changes in political attitudes, and of course the threat of tariffs is greatly unsettling the Canadian industry.”

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

“We need to focus on China and Mexico, not our closest allies around the world,” Ford said. “Let’s build a fortress. Let’s be an American-Canadian fortress against the rest of the world. If we stand together, we are unstoppable.”