As Donald Trump‘s tariff threats grow louder and more persistent, fear in the heart of Canada’s automaking industry is palpable.
“People are feeling three things. I think it’s fear, I think it’s anger, and I think it’s uncertainty,” said Oshawa Mayor Dan Carter, whose city has been reeling at the thought of the U.S. president’s threats to impose 25 per cent tariffs on all imports, along with further tariffs on aluminum, steel and the auto industry itself.
Tuesday, in a press conference at Mar-a-Lago, Trump mentioned a specific 25 per cent tariff on automotive imports, but it was unclear whether he was suggesting that would go on top of the already-threatened aluminum, steel and across-the-board tariffs.
For an industry which has been treating the entire continent as one big integrated supply chain for six decades, the prospect of putting up roadblocks at the borders is a chilling one, especially for workers and companies operating outside the U.S.
The entire industry could grind to a halt within days, the price of cars would shoot up dramatically, Canada would almost certainly be plunged into recession, automakers’ stock prices would nosedive, and tens of thousands of Canadian jobs would be at risk — some permanently — industry experts and economists warn.
Raw materials, parts and finished vehicles cross the Canada-U.S. border and U.S.-Mexico border several times, in what has been almost seamless fashion, thanks to the 1965 Auto Pact, followed by a series of free trade agreements culminating in the Canada-U.S-Mexico agreement signed in 2018, said Jim Stanford, chief economist at the Centre for Future Work.
“The whole thing has been built on a 60-year philosophy that we’re going to build cars together, and that there’s no such thing as a Canadian-made car or an American-made car,” said Stanford.
It’s something that thus far has served businesses, workers and consumers in all three countries well, said Stanford.
“We have a situation where we’ve got a successful, very productive industry that’s serving a continental market,” said Stanford.
Trump’s goal is clear, said Unifor national president Lana Payne, whose union includes roughly 23,000 members working in the auto industry.
“This guy is trying to destroy our economy and steal our jobs,” said Payne. “That’s what’s at stake here.”
She added that the persistence of Trump’s threats — along with their shifting nature — makes it clear he’s serious about doing damage to U.S. allies.
“We’re into a situation where there is an inability to trust right now,” said Payne. “So this is why, in my mind, the appeasement mode of working was never going to work.”
While Trump might have a long-term goal of luring auto making jobs back to the U.S. from Canada and Mexico, in the short run, the industry is likely to grind to a temporary halt, said Payne, because it’s set up for integration. Even a small part can bring down whole auto plants, Payne said, pointing to the global COVID-19 pandemic as an example.
“During COVID, we had a plant down because we couldn’t get bolts from a factory in China because that factory was down,” Payne said. “It was the only place that built those parts. I can guarantee you that we will be in a similar situation within days if there are tariffs.”
In the longer term, bringing jobs currently done in Canada and Mexico back to the U.S. would take many years, and require billions of dollars in new investment, said Brian Kingston, CEO of the Canadian Vehicle Manufacturers’ Association.
“It takes anywhere from three years to a decade,” said Kingston. “Replacing Canadian production would mean building five or six assembly plants, and it would cost upwards of $50 billion.”
In the meantime, tariffs would likely mean production grinding to a halt, at a time when Chinese automakers are going into high gear with their electric vehicle efforts, Kingston said.
“China has made very clear that they intend to become a global manufacturing powerhouse in electric vehicles. Over $233 billion U.S. is going into subsidizing the Chinese industry with the express intent of mechanical juggernaut,” said Kingston. “If we are fighting amongst ourselves in the midst of that struggle, it will only give the upper hand to China.”
While consumers are likely the ones who will end up paying much of the price for any auto tariffs, parts manufacturers on this side of the border are already worried that they could be placed in an untenable situation, said Flavio Volpe, CEO of the Auto Parts Manufacturers’ Association.
Usually, it’s the importer of record who has to pay up front for any tariffs. But in some cases, said Volpe, automakers have told parts makers to pony up in advance.
“Suppliers who make 7 per cent margin don’t have 25 per cent of their shipments in liquid cash to put up for their customers’ surtax,” said Volpe. “Seven per cent minus 25 per cent equals ‘we’re not making anything.’”
And that equation, said Volpe, holds true for all parts of the auto making industry across the U.S., Canada and Mexico.
“It wouldn’t take too long to make some companies unviable. But I want to be absolutely clear — that goes for American companies as well,” Volpe said. “Trump is shoving us all into a woodchipper.” Volpe said.
Still, despite the discouraging outlook, Oshawa’s mayor says he’s choosing to remain hopeful. His city, he adds, is still standing, despite taking hit after hit as manufacturing jobs moved southward.
“I have so much confidence in my city, and people that call themselves residents of the community, because they’ve demonstrated time after time that they can face challenges,” said Carter. “We can overcome, and make sure that the future is bright.”
