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

DETROIT – Concern is growing 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 automobile manufacturers – Ford engine, General Motors, Stellar, Toyota engine And Honda engines – produced 1.54 million light-duty vehicles within the province last 12 months, mostly for U.S. consumers.

“It would be terrible. It would destroy not only Canadian jobs but American jobs as well,” Ontario Premier Doug Ford told CNBC in a telephone interview.

A tariff is a tax on imports or foreign goods entering the United States. They are paid for by firms, a few of which fear they might simply pass the extra costs on to consumers.

Ford, who said he had not spoken to Trump directly, argued that any tariffs could be harmful to either side of the border.

He said raw materials and parts routinely cross the border multiple times before getting used in the ultimate assembly of a vehicle. He warned that tariffs would raise prices, which could then slow production and cut jobs.

“We have a trade agreement right now. “Things worked,” Ford said. “I said it publicly: I would like to do a bilateral trade agreement with the United States. And Mexico wants a trade agreement, we will do a bilateral trade agreement with Mexico. But Mexico, if it wants a seat at the table, they have to play by the rules.”

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 offered few details, such as whether there would be exceptions. He said he plans to cite “national security” concerns for such increases rather than seek congressional approval, saying illegal immigration and drug trafficking at the border are concerns and justify the tariffs.

A Wells Fargo analyst estimates that imposing tariffs on components could increase the cost of parts from Mexico, Canada and China by $600 to $2,500 per vehicle. Prices for vehicles assembled in Mexico and Canada — which account for about 23% of vehicles sold in the U.S. — could rise by $1,750 to $10,000.

Such tariffs and higher costs would cause embattled Canadian Prime Minister Justin Trudeau even more trouble as he fends off calls for his resignation.

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

According to Prime Minister Ford, Ontario as a province is the United States' third largest trading partner, including the largest foreign trade partner for 17 states. He points out that trade between Ontario – as well as all of Canada with the US – is much more evenly split than with Mexico, especially if you exclude the oil that Canada sends to the US

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 a Canada-based firm DesRosiers Automotive Consultants. Of this, the USA accounts for 95.3% of Canada's total car exports and 57.7% of total car imports.

“Anything that upsets that balance will impact either side of the border,” said Flavio Volpe, president of the Canadian Automotive Parts Manufacturers' Association. “The best tariff level for Canadian and American auto parts suppliers is zero.”

Volpe argues a double-digit tariff is “existential” and would impact 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 countries – and disrupted production at several automakers in the United States

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

Canada's automotive industry is on the upswing after a decade-long decline that escalated during the coronavirus pandemic.

According to industry data from Global Automakers, light-duty vehicle production in Canada reached 1.54 million vehicles last year, up from the recent low of 1.1 million in 2021 but still down 47% from the country's peak of 2.9 million in 2000 by the Canadian Trade Association.

“The industry, like American industry, faced the challenge of recovering from the pandemic. From a sales and production perspective, we are still not there, but we have recovered,” said David Adams, president of the Global Automakers of Canadawhich represents the interests of 16 non-U.S. based automobile manufacturers.

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

Much of the uncertainty was caused by the automotive industry's transition to fully electric vehicles, as EV adoption did not occur as quickly as expected. Trump has also vowed to eliminate subsidies for purchasing electric vehicles that have helped boost sales while federal benefits still exist.

“There is a lot of concern about the Canadian automotive industry because it is not clear which direction it should go,” said Charlotte Yates, president of the Automotive Policy Research Center and professor emeritus at McMaster University. “There are a number of changes in public policy as well as political attitudes, and of course the threat of tariffs is really shaking up the industry in Canada.”

Ford, Ontario's premier, said the U.S. and Canada should work together as they have for decades.

“We should focus on China and Mexico and not on its 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.”