Trump's 25% tariffs pose an existential threat to the Canadian auto industry

DETROIT — Concerns are growing that the president-elect Donald Trumpplan to impose Tariffs 25%. for imports from Canada would pose an existential threat to the country's reviving automotive industry.

Potential tariffs on vehicles and auto parts are particularly concerning in the province of Ontario, the epicenter of the Canadian auto industry. Five car manufacturers – Ford engine, General Motors, Stellar, Toyota engine AND Honda engines — produced 1.54 million light vehicles in the province last year, mostly for U.S. consumers.

“That would be terrible. “It would not only destroy jobs in Canada, it would devastate jobs in America,” Ontario Premier Doug Ford told CNBC in a telephone interview.

A tariff is a tax on imports or foreign goods brought into the United States. It is paid by companies, which some believe may simply pass on the additional costs to consumers.

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

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

“We now have a trade agreement. Everything is going well,” Ford said. “I have said it publicly: I would love to conclude a bilateral trade agreement with the US. Mexico wants a trade agreement, we will have a bilateral trade agreement with Mexico. But Mexico, if they want to sit at the table, they have to follow the rules.”

Trump announced that he would impose an additional 10% tariff on goods from China 25% tax for Canada and Mexicoalthough he did provide some details, such as whether there would be exceptions. He said he plans to invoke “national security” reasons to implement such increases rather than seeking congressional approval, arguing that illegal immigration and illegal drug trafficking are causing concerns at the border, which justifies the tariffs.

Imposing tariffs on components could add $600 to $2,500 to the price per vehicle for 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 U.S. – could rise from $1,750 to $10,000.

Such tariffs and increased costs would increase problems for embattled Canadian Prime Minister Justin Trudeau, as he does rejects calls for his resignation.

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

According to Prime Minister Ford, Ontario, as a province, is the third largest trading partner of the United States, including the main foreign trade partner for 17 states. He points out that trade between Ontario – and Canada more broadly with the United States – is much more evenly divided than with Mexico, especially when it comes to phasing out oil sent through Canada to the U.S.

In 2023, Canadian auto parts exports were $23.5 billion, while light vehicle exports were $53.5 billion. According to Canadian data, imports amounted to $47.5 billion and $70.4 billion, respectively DesRosiers car consultants. Of these, the United States accounts for 95.3% of Canada's total car exports and 57.7% of total car imports.

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

Volpe argues that a double-digit tariff would be “existential” and have implications for the U.S. auto industry. He cited 2022 as an example, when Canadian truck drivers blocked the Ambassador Bridge between Detroit and Windsor, Ontario, Canada – the busiest border bridge between the countries – disrupting production for several US car manufacturers

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

“The industry, like the American industry, has faced the challenge of recovering from the pandemic. We are still not at a satisfactory level from a sales and production perspective, but we are already emerging from the crisis,” said David Adams, president of… Global automakers in Canadawhich represents the interests of 16 non-US automakers.

The increase comes even though two major assembly plants in Ontario, owned by Ford and Stellantis, are in limbo because the factories currently have no vehicles to produce. Thousands of workers were laid off due to lack of production.

Much of the uncertainty resulted from the automotive industry's transition to all-electric vehicles, as adoption of electric vehicles did not happen as quickly as expected. Trump also announced the removal of subsidies for the purchase of electric vehicles, which have helped boost sales, although federal benefits remain in place.

“The Canadian auto industry is deeply concerned that it is unclear what 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 is really shaking up industry in Canada.”

Ford, the Ontario premier, 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. We can't be stopped if we stick together.”