Reacting to Canada’s rebuff in trade negotiations, U.S. President Donald Trump threatened an enormous escalation in the automotive trade war he started last year.
Since April 2025, Canadian-assembled vehicles have been subject to a 25 per cent tariff. The levy is adjusted downward to reflect U.S.-made parts, which typically constitutes half of the total value of a Canadian-made car.
Canada then imposed a mirror tariff on U.S.-made vehicles, in retaliation for the U.S. tariff. Companies which manufacture in Canada can have some or all of that tariff waived.
Eliminating (or at least reducing) that 25 per cent tariff, which directly violates the Canada-U.S-Mexico Agreement (CUSMA) which Trump himself negotiated, has been a top priority for Canada in negotiations with the U.S.
But when the latest trade talks collapsed, Trump threatened a 50 per cent tariff on all vehicles and parts from Canada — an economic nuclear bomb that would lay waste to the auto industry in both countries.
Given the tight integration of the continental auto supply chain (a legacy of the 1965 Canada-U.S. Auto Pact), American factories would be hurt as badly as Canadian.
Fortunately, that’s why this tariff will never happen.
It’s no coincidence that Trump’s deadline for those 50 per cent auto tariffs is Jan. 1, 2027 — two months after the U.S. midterm elections, which Republicans will likely lose badly.
Between now and Jan. 1 there will be more threats, more ultimatums, more theatre.
Trump is trying desperately to distract middle America from actual problems like inflation, a looming bond market crisis, and a far-off war that is going badly. Inventing a confrontation with Canada is a convenient — if unbelievable — diversion.
In the meantime, U.S. auto manufacturers are quietly urging him to back off. In the end, Trump will chicken out, again. If he doesn’t, tens of thousands of auto jobs in his own country (as well as Canada) will be in jeopardy.
If anything, it is Canada who has legitimate complaints about the evolution of automotive trade within North America.
Canada once enjoyed an automotive trade surplus with the U.S. Since 2021, however, Canada has incurred a significant deficit with the U.S. in two-way auto trade. By Trump’s own primitive logic, Canada is now the aggrieved party.
Trade war shrinking amount of business going to U.S. factories
Canada purchased $73 billion in autos and parts from the U.S. last year, while $68 billion went the other way. But Trump’s obsession with “bringing jobs home” is jeopardizing this lucrative market for American products.
Our auto imports from the U.S. fell nine per cent over the first six months of 2026, compared to the same period of 2025. Canadian automotive exports to the U.S. shrank slightly more.
So the trade war is not significantly altering the balance (still in America’s favour). But it is shrinking the total amount of business coming to U.S. factories.
That’s just one reason why U.S. automotive employment is shrinking, not growing. The U.S. has shed almost 40,000 auto jobs since Trump’s 2024 election. That’s six times more than Canada’s auto industry lost during the same time.
So Trump’s insanity is hurting the industry on both sides of the border (and in Mexico, too). Meanwhile, North American producers continue to lose ground to rivals in Europe, Korea, and especially China. Trump is facilitating mutual automotive suicide.
Amazingly, despite the continental chaos caused by Trump’s tariff tantrums, some good things are still happening in Canada’s auto sector.
On the very night that the Canada-U.S. trade talks collapsed, Unifor (the autoworkers union) announced a tentative agreement with General Motors. Details were not public at time of writing, but it likely includes GM committing to new investments in Canadian facilities. That would mirror a $1.2 billion investment pledged by Ford in its deal with Unifor last month.
The U.K.‘s Second World War motto comes to mind: ‘Keep Calm and Carry On.’
We can’t ignore the mutual, long-run damage Trump’s lose-lose trade war could inflict on this vital industry, and we need to robustly support Canadian negotiators’ determination to eliminate the auto tariffs.
And Ottawa needs to provide powerful incentives to reward automakers that maintain their footprint here — and punish those that think they can freely sell here, without producing here.
These steps would re-establish some equilibrium in this industry. But that will take time.
In the meantime, automotive stakeholders like Unifor, Ford, and GM are indeed carrying on: forging labour contracts and investment commitments that allow this industry to keep producing great vehicles, and supporting hundreds of thousands of jobs in the process.
