Bid to shut down the automobile manufacturing: Trump ramps up auto tariff rhetoric with threat to finish Canadian industry
U.S. President Donald Trump fired new shots in the tariff war on Tuesday, vowing on social media to put an end to Canada’s auto industry amid a chaotic volley of trade threats that sent stock markets lower.
Mr. Trump has said a key goal of his protectionist trade policy is to persuade foreign manufacturers, especially automakers, to shift production to the United States. The President’s language has become increasingly menacing in recent weeks, turning outright hostile to the Canadian auto industry on Tuesday, after Ontario Premier Doug Ford briefly imposed a surcharge on electricity exports to the United States.
“If other egregious, long time Tariffs are not likewise dropped by Canada, I will substantially increase, on April 2nd, the Tariffs on Cars coming into the U.S. which will, essentially, permanently shut down the automobile manufacturing business in Canada,” Mr. Trump said in a post on Truth Social. “Those cars can easily be made in the USA!”
The highly integrated North American auto industry managed to win a temporary reprieve from tariffs last week. Mr. Trump imposed 25-per-cent tariffs on goods from Canada and Mexico, but then paused them for a month for goods that comply with the United States-Mexico-Canada Agreement (USMCA), the continental free trade pact.
Mr. Trump said he took this decision after speaking with the heads of Ford Motor Co., General Motors Co. and Stellantis , although he warned it was just a “short term” modification to his tariff plans to allow the Big Three Detroit automakers to adjust their supply chains.
Auto executives and business leaders say tariffs, if they come into effect, would add billions of dollars in costs for U.S. importers of parts and vehicles from Canada and Mexico. They say moving plants to the U.S. is expensive, and untangling and rebuilding the complex supply chains while finding skilled workers is a massive undertaking.
“You don’t replace that in a matter of weeks or months or even years,” said Greig Mordue, a professor of manufacturing at McMaster University.
Prof. Mordue said Canada buys more cars from the Big Three than it makes, and already runs a deficit in auto production with the U.S.
About 55 per cent of 17 million vehicles sold in the U.S. in 2023 were assembled there, with 15 per cent coming from Mexico and 7 or 8 per cent from Canada, according to Ward’s Automotive and Bank of Montreal.
“If he thinks that he’s going to bring back home the [Detroit 3] manufacturing, that’s fine, and I can understand why he’d want to do that,” Prof. Mordue said by phone. “But the reality is we made 420,000 cars last year by the D3 – Stellantis, Ford and General Motors. We bought 700,000. So if he’s looking purely at the D3, Canada is already in a deficit and so there’s not much to bring back.”
Ontario plants run by Ford, GM, Stellantis, Honda Motor Co. Ltd. and Toyota Motor Corp. made a total of 1.5 million passenger vehicles in 2023, 93 per cent of which were exported to the U.S.
While the 25-per-cent across-the-board tariffs have been paused, Mr. Trump said that he intends to proceed with 25-per-cent tariffs on steel and aluminum products starting on Wednesday. Mr. Trump’s Tuesday comment on Canada’s auto industry, along with a vow to double the steel and aluminum tariffs on Canada, came after Ontario Premier Doug Ford had pledged a surcharge on the province’s electricity exports to the U.S. But after Mr. Ford dropped the surcharge, the U.S. agreed to keep those tariffs at 25 per cent.
That could push up materials costs for auto manufacturers, although the overall impact will be mitigated by the fact that many of the large automakers source their metal from the U.S., have long-term fixed-price contracts or use hedging strategies to reduce their exposure to changing commodity prices, said Nishit Madlani, sector lead for North American Autos at S&P Global Ratings.
However, if Mr. Trump pushes forward with his 25-per-cent tariffs on all Canadian and Mexican goods on April 2, U.S. automakers will suffer. “It’ll obviously be a big hit to their costs … potentially several billion of lost profits,” Mr. Madlani said in an interview.
After being elected U.S. President again last November, Mr. Trump ignited a tit-for-tat tariff battle with Canada and Mexico, the U.S.’s long-standing partners in the USMCA he himself signed in his first term.
He has cited various discredited reasons for the tariffs on Canada, including the need to stop the flow of illegal drugs and migrants, and a trade deficit he says amounts to “subsidizing” the U.S.’s northern neighbour. If oil imports are excluded, Canada has a merchandise trade surplus with the U.S.
David Adams, chief executive officer of Global Automakers of Canada, which represents European and Asian carmakers in Canada, said that the threat of tariffs is having a chilling effect on investment decisions.
“Decisions aren’t made lightly, you’re talking about billions of dollars of capital investment and, from my understanding, the situation is a bit of a wait-and-see at this point,” Mr. Adams said in an interview. “The longer tariffs are in effect, the more problematic it becomes for everybody that’s looking at what the next step is here.”
Mr. Trump has been explicit that his goal is to get global auto companies to invest more in the U.S. He has threatened tariffs against Asian and European carmakers, but also invited them to build factories in the U.S. There are some early signs that his strategy is working. Reuters reported last week that Honda plans to produce the next version of its Civic in Indiana rather than Mexico.
However, a wholesale repatriation of the auto industry to the U.S. is unlikely, Erik Johnson, senior economist at Bank of Montreal, said in an interview. It takes years to relocate assembly plants, and companies are unlikely to make multimillion- or billion-dollar decisions based on trade policy that seems to change by the hour.
The uncertainty is also not conducive to investment in the U.S., let alone Canada. And foreign automakers are just as likely to make cars outside North America and pay a one-off tariff than have to deal with the growing web of tariffs on raw materials, auto parts and finished vehicles, Mr. Johnson said.
“If I’m Hyundai, if I’m Kia, if I’m Toyota and Honda, if I’m seeing the way this sort of tariff regime is being defined, I’m going to start taking advantage of the fact that I can almost completely assemble vehicles in, say, South Korea or Japan, and then ship them across the ocean, certainly at a cost, but then they’re going to land at the U.S. border and I’m going to pay one tariff rate on them,” he said.
This article was first reported by The Globe and Mail
