Canadian and American flags fly near the base of the Ambassador Bridge connecting Canada to the U.S. in Windsor, Ontario, Canada, on Wednesday, May 26, 2021.
Cole Burston | Bloomberg | Getty Images
DETROIT – There are growing concerns that President-elect Donald Trump's plan to impose 25% tariffs on Canadian imports would pose an existential threat to the country's recovering auto industry.
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 engines, Stellantis, Toyota engine And Honda engine – produced 1.54 million light-duty vehicles in the province last year, largely for U.S. consumers.
“It would be terrible. It would not only destroy Canadian jobs, it would destroy American jobs,” Ontario Premier Doug Ford told CNBC during a telephone interview.
A tariff is a tax on imports, or foreign goods, entering the US. They are paid by companies, some of whom fear they would simply pass on any additional costs to consumers.
Ford, who said he has not spoken directly to Trump, argued that any tariffs would be harmful to both sides of the border.
He said raw materials and parts routinely cross the border several 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 have a trade deal now. Things are working,” Ford said. “I have said it publicly: I would love to sign a bilateral trade agreement with the US. And Mexico wants a trade deal, we will make a bilateral trade deal with Mexico. But Mexico, if they want to have a seat at the table, they have to follow the rules.”
Ontario Premier Doug Ford answers questions from reporters as he hosts the fall meeting of Canadian Prime Ministers in Mississauga, Ontario, Canada on December 16, 2024.
Carlos Osorio | Reuters
Trump has said he will impose an additional 10% tariff on goods from China and a 25% levy on Canada and Mexico, although he has provided few details, such as whether there would be exceptions. He has said there are plans to invoke “national security” concerns to implement such increases, rather than seeking congressional approval. He says illegal immigration and illegal drug trafficking are causing concerns at the border, which justifies the tariffs.
Imposing tariffs on parts could add $600 to $2,500 per vehicle on parts from Mexico, Canada and China, according to estimates in a Wells Fargo analyst note. Prices for vehicles assembled in Mexico and Canada — which represent about 23% of vehicles sold in the U.S. — could rise $1,750 to $10,000.
Such tariffs and higher costs would compound problems for embattled Canadian Prime Minister Justin Trudeau as he fends off calls for his resignation.
Ontario: the car capital of Canada
Ontario recently launched a multimillion-dollar advertising campaign in the US to promote its role as a major trading partner and “ally of the North.”
As a province, Ontario is the third-largest trading partner of the U.S., including the top foreign trading partner for 17 states, Premier Ford said. He points out that trade between Ontario – and broader Canada with the US – is much more evenly distributed than with Mexico, especially when it comes to removing the oil Canada sends to the US.
Canadian Prime Minister Justin Trudeau addresses the Liberal Party caucus meeting in Ottawa, Ontario, Canada on December 16, 2024.
Blair Gable | Reuters
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 that, the US is responsible for 95.3% of Canada's total auto exports and 57.7% of its total auto imports.
“Anything that upsets that balance will impact 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,” impacting the U.S. auto industry. As an example, he cited 2022, when Canadian truckers blocked the Ambassador Bridge between Detroit and Windsor, Ontario, in Canada — the busiest border bridge between the countries — disrupting production at several U.S. automakers.
Toyota is the top-producing automaker in Canada, with approximately 526,000 units in 2023, followed by Honda with nearly 378,500 vehicles. GM, once the largest manufacturer in Canada with more than 1 million vehicles, is now one of the smallest light-duty vehicle makers in the region.
Industry on the mend
Canada's auto industry is experiencing a revival after a decades-long decline that escalated during the coronavirus pandemic.
Canada's light vehicle production reached 1.54 million vehicles last year, up from a recent low of 1.1 million in 2021, but still down 47% from the country's peak of 2 .9 million in 2000, according to industry data from the Canadian Trade Association's Global Automakers.
“The industry, like the American one, is struggling to recover from the pandemic. From a sales and production perspective, we are still not there yet, but we are recovering,” said David Adams, president of the Global Automakers of Canada. , which represents the interests of 16 non-US automakers.
The uptick comes despite the fact that two major assembly plants in Ontario, owned by Ford and Stellantis, are in limbo as the plants currently have no vehicles to produce. Thousands of workers have been laid off due to the lack of production.
Much of the uncertainty has been caused by the automotive industry's transition to fully electric vehicles, as electric vehicle adoption has not occurred as quickly as expected. Trump has also pledged to eliminate subsidies for electric car purchases, which have helped boost sales, while federal benefits remain.
“There is a lot of concern about the Canadian auto industry because it is not clear which direction we should go in,” said Charlotte Yates, chair of the Automotive Policy Research Center and professor emeritus at McMaster University. “There's been a series of changes in government policy, but also changes in political attitudes, and of course the threat of tariffs is really throwing the industry into turmoil in Canada.”
Ford, Ontario's premier, said the U.S. and Canada must work together, as they have done for decades.
“We need to focus on China and Mexico, not their closest allies 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.'