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

DETROIT – There is growing concern that President-elect Donald TrumpPlan 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 concerning for the province of Ontario, the center of Canada's auto industry. Five automobile manufacturing companies – ford motor, GM, excellent, toyota motor and Honda Motors – 1.54 million light-duty vehicles were produced last year in the province, most of them for American consumers.

“It would be terrible,” Ontario Premier Doug Ford told CNBC during a phone interview. “Not only will it destroy Canadian jobs, it will destroy American jobs.”

A tariff is a tax on imports, or foreign goods, brought into the United States and paid by businesses, which some fear could simply pass on any additional costs to consumers.

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

He said that raw materials and parts routinely pass across borders several times before being used in the final assembly of the vehicle. He warned that tariffs would lead to higher prices, which could then slow production and eliminate jobs.

“We have a trade agreement now,” Ford said. “Things are going well.” “I've said it publicly: I'd like to do a bilateral trade deal with the United States 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 said he would impose an additional 10% tariff on goods coming from China 25% tax on Canada and MexicoAlthough he provided few details, such as whether there would be exceptions. He said there were plans to raise “national security” concerns to enact such increases, rather than obtain congressional approval, saying that illegal immigration and the illicit drug trade raise concerns at the border, which justifies the tariffs.

Tariffs on components could add $600 to $2,500 per vehicle to parts of Mexico, Canada and China, according to estimates in an analyst note at Wells Fargo. Prices for vehicles assembled in Mexico and Canada — which account for about 23% of vehicles sold in the U.S. — can rise from $1,750 to $10,000.

Such tariffs and rising costs would add to the problems facing embattled Canadian Prime Minister Justin Trudeau. He responds to calls demanding his resignation.

Ontario recently launched a multi-million dollar advertising campaign in the United States to reinforce its role as a major trading partner “An ally of the North.”

As a province, Ontario is the third-largest trading partner of the United States, including the largest foreign trading partner of 17 states, according to Ford, the premier. He points out that Ontario's trade — as well as Canada's broader trade with the United States — is much more evenly divided than it is with Mexico, especially when you remove the oil that Canada sends to the United States.

Canadian exports of auto parts reached $23.5 billion in 2023, while light vehicle exports totaled $53.5 billion. Total imports were $47.5 billion and $70.4 billion, respectively, according to Canada Des Rozier Automotive Consultants. Of these exports, the United States represents 95.3% of Canada's total automobile exports and 57.7% of its total automobile imports..

“Anything like this that upsets that balance will affect both sides of the border,” said Flavio Volpi, president of the Canadian Auto Parts Manufacturers Association. “The best tariff level for Canadian and U.S. auto parts suppliers is zero.”

Volpe says double-digit tariffs would be “existential,” and would have ripple effects on the U.S. auto industry. As an example, he pointed to 2022, when Canadian truck drivers blocked the Ambassador Bridge between Detroit and Windsor, Ontario, in Canada — the busiest border bridge between the two countries — Disruption of manufacturing For many automakers in the United States

Toyota is Canada's most prolific automaker, with about 526,000 units in 2023, followed by Honda with about 378,500 vehicles. Once the largest producer in Canada with more than one million vehicles, GM is now one of the smallest light vehicle manufacturers in the region.

“The industry, like the American industry, has faced challenges recovering from the pandemic,” said David Adams, the company's president. “We're still not there from a sales and production standpoint, but we are recovering.” Global automakers in Canadawhich represents the interest of 16 automakers outside the United States.

The rise comes even though two large assembly plants in Ontario, owned by Ford and Stellantis, are in limbo, with the plants currently having no vehicles to produce. Thousands of workers were laid off as a result of a lack of production.

Much of the uncertainty has been caused by the auto industry's shift to fully electric vehicles, e.g Adoption of electric vehicles It didn't happen as quickly as expected. Trump also pledged to eliminate subsidies for electric vehicle purchases, which helped stimulate sales while federal benefits still exist.

“There is deep concern about the Canadian auto industry because it is not clear what direction we should go in,” said Charlotte Yates, president of the Center for Automotive Policy Research and professor emeritus at McMaster University. “There are a series of changes in public policy as well as changes in political positions and, of course, the threat of tariffs that are shaking up industry in Canada.”

Ford, the Ontario premier, said the United States and Canada must work together, as they have for decades.

“We should focus on China and Mexico, not on its closest allies in the entire world,” Ford said. “Let's build a fortress, an American-Canadian fortress against the rest of the world. We are unstoppable if we stick together.”