Trump Considers Up to 100% Tariff on Canadian Cars Amid Rising Tensions

 

Canadian Auto Industry Faces Major Challenges as Trump Threatens Tariffs

As Canada prepares for the impact of U.S. tariffs on steel and aluminum, U.S. President Donald Trump is now considering an additional tariff on Canadian-made cars, potentially as high as 50 to 100 percent. This new threat adds to the growing economic tensions between the two neighboring countries, who have long shared an integrated auto manufacturing sector.

In an interview with Fox News, President Trump expressed frustration with Canada's auto industry, claiming that Canada "stole" the U.S. automobile market. Trump explained, “If you look at Canada, Canada has a very big car industry. They stole it from us. They stole it because our people were asleep at the wheel." He emphasized that if the U.S. cannot reach a deal with Canada, a steep tariff could be imposed. "Could be a 50 or 100 percent because we don’t want their cars. We want to make the cars in Detroit," Trump said.

The U.S. and Canadian auto sectors have been closely linked since the 1960s, when the two nations signed the Canada-United States Automotive Products Agreement, also known as the Auto Pact. This agreement removed tariffs on cars and car parts between the countries, fostering an era of collaboration that lasted until 1994. The North American Free Trade Agreement (NAFTA), which replaced the Auto Pact, extended free trade to all industries, not just automotive manufacturing. NAFTA was later replaced by the Canada-United States-Mexico Agreement (CUSMA) in 2018, which is set for renegotiation in 2026.

The Economic Implications of Tariffs on the Canadian Car Industry
In the wake of Trump's recent signing of presidential proclamations to impose 25 percent tariffs on steel and aluminum, industry experts are warning of catastrophic consequences should the tariffs on cars come to fruition. Industry leaders have stated that such tariffs could bring the entire North American auto industry to a halt. Flavio Volpe, president of the Automotive Parts Manufacturers Association, has expressed concerns that a tariff on Canadian-made cars could result in a shutdown of production lines across both countries.

Volpe remarked, “Last week, when we thought we were getting a 25 percent tariff on everything, including cars and parts, I said that as soon as those tariffs come in, within a week, the industry would be shut down.” He argued that even a tariff specific to the car industry would have similarly devastating effects.

Brian Kingston, president of the Canadian Vehicle Manufacturers Association, also warned that such tariffs would significantly disrupt production, lead to job losses, and raise consumer prices in both countries. He said, “If you put in place tariffs, which are taxes of the scale that are being contemplated by the United States, it could lead to production stoppages, job losses, and of course, price increases for Americans.”

The impact on the supply chain would be immediate. Volpe pointed out that the auto sector relies on a finely tuned, integrated network of suppliers, and even one part missing from the chain could shut down production. He used the example of a seat manufacturer in London, Ontario, supplying seats for a Jeep plant in Toledo, Ohio, where production could cease due to a lack of parts.

Long-Standing Integration Between U.S. and Canadian Auto Industries
Economist Tu Nguyen from RSM Canada explained that the North American automobile manufacturing sector is so intertwined that a tariff on Canadian-made cars could severely disrupt both the U.S. and Canadian economies. She pointed out that it is rare for a car to be entirely made in Canada, with many parts crossing the border multiple times during the assembly process.

Nguyen stated, "The North American auto manufacturing sector is so integrated that a car can cross the border up to eight times before it is fully assembled." She also warned that shifting production away from Canada to the U.S. would be unrealistic. “If you were to replace Canadian production, you would need five or six assembly plants to be built in the United States. That would cost about US$50 billion and it would take upwards of 10 years."

In the face of potential tariffs, European and Asian automakers could gain an advantage over North American producers. Nguyen suggested that U.S. automakers would be hit hard by the tariffs, as it would delay production and increase costs. Moreover, Asian and European manufacturers, which would not be subject to the same tariffs, could gain a competitive edge.

Economic Fallout and Retaliatory Measures
If Canada retaliates against the proposed U.S. tariffs, American consumers could face higher prices for new vehicles. According to Kingston, "An American consumer going to buy a new vehicle could see new vehicle prices increase by $6,500, if not more."

The economic ripple effects would not be confined to the automotive industry alone. Tariffs on Canadian-made cars could ultimately harm U.S. consumers who rely on the availability of affordable vehicles. The cost increases for consumers could also impact the broader retail market, affecting other sectors that depend on the auto industry for supply.

Setting the Record Straight on the ‘Stolen’ Auto Industry Claim
Trump’s assertion that Canada “stole” the U.S. auto industry has been refuted by many in the industry, including Volpe, who called it an “outright lie.” He pointed out that the Canadian auto sector was built with the involvement of U.S. companies such as Ford Motor Company, which started operations in Canada in 1904, and General Motors, which established a presence in Canada in 1908.

Kingston added, “Canada is the largest export market for U.S. motor vehicles in the world. In fact, exports to Canada are larger than all exports to China, Germany, and Mexico combined.” Since the signing of the new CUSMA, the bulk of new investment in the automotive sector has flowed into the United States, with 80 percent of the US$288 billion in new investment being directed to the U.S.

Ultimately, while the ongoing trade disputes between Canada and the U.S. over tariffs on steel, aluminum, and automobiles are expected to have significant implications for both economies, the resolution of these tensions will require careful negotiation to avoid long-term harm to the integrated North American auto industry.