Auto Industry Under Siege

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

There’s growing concern that President-elect Donald Trump’s plan to impose 25% tariffs on Canadian imports would be an existential threat to the country’s recovering automotive industry.

Potential tariffs on vehicles and automotive parts are particularly alarming for the province of Ontario, the epicenter of Canada’s auto industry. Five automakers — Ford Motor, General Motors, Stellantis, Toyota Motor, and Honda Motor — produced 1.54 million light-duty vehicles last year in the province, largely for U.S. consumers.

"It’d be terrible. It’d not only devastate Canadian jobs, it’d devastate American jobs," Ontario Premier Doug Ford told CNBC during a phone interview.

A tariff is a tax on imports, or foreign goods, brought into the U.S. They are paid for by companies, which some fear would simply pass any additional costs on to consumers.

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

"We have a trade agreement right now. Things have been working," Ford said. "I’ve said it publicly: I’d love to do a bilateral trade deal with the U.S. And Mexico wants a trade deal, we’ll do a bilateral trade deal with Mexico. But Mexico, if they want a seat at the table, they have to follow the rules."

Trump has said he will impose an additional 10% tariff on goods from China and a 25% levy for Canada and Mexico, though he has offered few details, such as if there would be exceptions. He has said plans to invoke "national security" concerns to enact such hikes, rather than seeking congressional approval, saying illegal immigration and the illicit drug trade are causing concerns on the border, justifying the tariffs.

Putting tariffs on components 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 on vehicles assembled in Mexico and Canada — which account for about 23% of vehicles sold in the U.S. — could rise $1,750 to $10,000.

Ontario: Canada’s auto capital

Ontario recently launched a multimillion-dollar ad campaign in the U.S. to promote its role as a key trading partner and "ally to the North."

Ontario, as a province, is the third-largest trading partner for the U.S., including the top foreign trade partner for 17 states, according to Ford, the premier. He points out that trade between Ontario — as well as broader Canada with the U.S. — is much more evenly split than it is with Mexico, especially when removing the oil Canada sends to the U.S.

Canada’s Prime Minister Justin Trudeau addresses the Liberal party caucus meeting in Ottawa, Ontario, Canada December 16, 2024. Blair Gable | Reuters

Industry on the mend

The Canadian automotive industry is on an upswing following a decades-long decline that escalated during the coronavirus pandemic.

Light-duty vehicle production in Canada hit 1.54 million vehicles last year, up from a recent low of 1.1 million in 2021, but still a 47% decline from the country’s peak of 2.9 million in 2000, according to industry data provided by the Global Automakers of Canada trade association.

"The industry, like the American industry, has been challenged recovering from the pandemic. We’re still not there from a sales and production point of view, but we have been recovering," said David Adams, president of the Global Automakers of Canada, which represents the interest of 16 non-U.S. based automakers.

Conclusion

The looming tariffs threaten not only the recovery of the Canadian automotive industry but also the economies of the regions involved. Any disruptions to trade between Canada and the U.S. could lead to a destabilization of the entire industry. The consequences could be devastating for both countries and their citizens.