Auto Industry in Canada Pushing Back Against Tariffs
In a recent development, Ontario Premier Doug Ford has called for a 50% tariff on U.S. steel and aluminum to support domestic production. This move comes amidst ongoing trade tensions between Canada and the U.S., particularly in the auto industry.
As of August 2025, the U.S. has imposed a 35% tariff on auto and auto parts imports from Canada that do not comply with the USMCA (United States-Mexico-Canada Agreement). These tariffs, effective from August 1, 2025, have had significant impacts.
The tariffs have led to potential supply chain disruptions, increased costs for auto industries on both sides, and higher consumer prices. The tariffs contribute to higher vehicle prices, especially impacting affordable and entry-level cars, many of which are imported and cannot easily absorb tariff costs.
Moreover, the tariffs have resulted in reduced new vehicle and especially electric vehicle (EV) offerings. Automakers have scaled back on introducing new EV models partly due to the economic uncertainty and increased costs driven by tariffs.
The tariffs also pose a risk to North American auto manufacturing jobs and plants. Canadian Prime Minister Trudeau has noted that tariffs threaten American assembly plants and manufacturing facilities, highlighting potential job losses and broader economic damage in the U.S. auto sector.
It's important to note that tariffs on Canadian autos do not stack with Section 232 steel and aluminum tariffs or other auto-related tariffs, reducing some tariff layering. However, the trade tensions also involve concerns beyond autos, such as U.S. complaints over Canadian tariffs and importation challenges like fentanyl.
The trade flows between Canada and the U.S. are significant. Canada exported more light vehicles to the U.S. than to Germany, Mexico, and China combined. Most Canadian vehicle production is between 50% to 60% U.S. content, resulting in an effective tariff of approximately 10%-12.5%.
The Ontario government is planning to speed up regulatory approvals for industrial projects and build new infrastructure to diversify trading partners. Meanwhile, the Canadian automotive industry has called for increased efforts to secure a trade deal between Canada and the U.S., as the August 1 deadline was missed.
The trade issues could potentially impact European automakers as well. If the current tariff talks fail to yield much progress within two weeks, attention will turn to the review of the USMCA, which is scheduled to begin in October, potentially freezing the talks and protection.
However, a deal can still be struck to roll back the tariffs, according to Kingston. Flavio Volpe, Canada's Automotive Parts Manufacturers' Assn. president, states that the trade talks are ongoing and Canada is still working on a deal in Washington.
In conclusion, the current tariff regime raises costs and risks disruptions in the Canada-U.S. auto trade, threatens vehicle affordability and diversity, and exacerbates trade tensions with retaliatory measures that could impact North American manufacturing jobs and the broader economy. It is crucial for both countries to find a resolution to these issues to maintain a healthy and prosperous trade relationship.
References:
- CBC News
- Global News
- The Globe and Mail
- Justice Canada
- Toronto Star
The Canadian automotive industry is grappling with increased costs due to the tariffs, specifically impacting vehicle production and affordability, as more expensive cars, including entry-level models, are the primary imports that cannot easily absorb these charges. Additionally, the tariffs have led to reductions in new vehicle and electric vehicle offerings, potentially hindering sports vehicle production, a segment that relies heavily on affordable and innovative electric vehicles.
