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

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

The potential for tariffs on cars and auto parts is particularly concerning for Ontario, the heart of Canada’s auto industry. 5 car manufacturers — ford motor, general motors, Stellantis, toyota motor vehicle and honda motor industry — Last year, the state produced 1.54 million light vehicles, primarily for U.S. consumers.

“It’s terrible. It’s not only going to destroy Canadian jobs, it’s going to destroy American jobs,” Ontario Premier Doug Ford told CNBC in a phone interview.

Tariffs are taxes on imported goods, or foreign products, brought into the United States. That cost would be paid by businesses, but some fear the additional costs would simply be passed on to consumers.

Mr. Ford said he had not spoken directly to President Trump and argued that any tariffs would be harmful to both sides of the border.

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

“We have trade deals in place right now. Things are going well,” Ford said. “I’ve said this publicly: I want to have a bilateral trade deal with the United States. And Mexico wants a trade deal. We’re going to have a bilateral trade deal with Mexico. But if Mexico wants a seat at the table, so will Mexico, they have to follow the rules. ”

President Trump has said he would impose a 10% tariff on goods from China and 25% tariffs on Canada and Mexico, but provided few details, including whether there would be exceptions. He said illegal immigration and illegal drug trafficking are causing concerns at the border and justifying the tariff increases, and instead of seeking Congressional approval, he called on “national security” to enact these increases. He said the plan is to raise concerns.

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

Such tariffs and cost increases would be a further problem for Canadian Prime Minister Justin Trudeau, who is in a bind as he fends off calls to resign.

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

According to Premier Ford, Ontario is the third largest trading partner of the United States as a province and the largest foreign trading partner of 17 provinces. He points out that trade between Ontario and between Canada and the United States is much more equal than trade with Mexico, especially when it comes to removing oil that Canada sends to the United States.

Canada’s auto parts exports totaled $23.5 billion in 2023, and light vehicle exports totaled $53.5 billion. Total imports were $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 Canada’s total automobile imports.

“Anything that upsets the balance will have an impact on both sides of the border,” said Flavio Volpe, president of the Canadian Automotive Parts Industries Association. “The best tariff level for Canadian and American auto parts suppliers is zero.”

Volpe argues that double-digit tariffs “exist” and have a ripple effect on the U.S. auto industry. As an example, he said that in 2022 Canadian truckers will block the Ambassador Bridge between Detroit, Canada and Windsor, Ont., the busiest border bridge between the two countries, and that several U.S. automakers will He cited the disruption caused to manufacturing.

Toyota is Canada’s largest automaker, producing approximately 526,000 vehicles in 2023, followed by Honda with approximately 378,500 vehicles. GM, once Canada’s largest manufacturer with over 1 million vehicles, is now one of the region’s smallest light car manufacturers.

Canada’s auto industry is on the upswing after a decades-long slump that intensified during the coronavirus pandemic.

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

“Like the American industry, our industry faces challenges in recovering from the pandemic,” said David Adams, president of Canada Global Automakers. “It’s happening,” he said. , which represents the interests of 16 non-U.S.-based automakers.

The increase comes even as two large assembly plants in Ontario, owned by Ford and Stellantis, are currently at a standstill with no vehicles to produce. Thousands of workers were laid off as a result of production shortages.

Much of the uncertainty was caused by the auto industry’s transition to fully electric vehicles, as EV adoption is not happening as quickly as expected. President Trump also vowed to eliminate subsidies for purchasing EVs, which had helped boost sales while federal subsidies still existed.

“We have deep concerns about the Canadian auto industry as well, because it’s not clear which direction to go in,” said Charlotte Yates, director of the Center for Automotive Policy Research and professor emeritus at McMaster University. “There’s been a series of public policy changes and changes in political attitudes and, of course, the threat of tariffs that have shaken up the industry in Canada.”

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

“We should be focusing on China and Mexico, not our closest allies around the world,” Ford said. “Let’s build a fortress. A fortress for America and Canada against the rest of the world. When we are united, nothing can stop us.”