A 15 per cent tariff on Canadian-made cars entering the U.S. would still be a major problem for this country’s automotive sector even if it’s better than what we’ve been threatened with, industry analysts say.
According to reports from several U.S. publications, the U.S. has agreed to cut the tariff on Canadian-made cars from the current 25 per cent to 15, as part of a tentative trade deal this week.
The bigger problem, experts say, is that the tariff would likely apply to all non-U.S. content, including Canadian-made parts.
That means the effective tariff rate would still be anywhere from seven to eight per cent, said McMaster University engineering professor Greig Mordue, a former senior executive with Toyota Canada.
“It might be better than 25, but the reality is that 15 per cent is problematic. That’s still effectively seven or eight per cent, give or take,” said Mordue, who noted that’s roughly the same percentage of a car’s final cost as labour at an assembly plant. “No automaker is going to look at that and say ‘we’re going to pay for labour twice.’ They’d be looking at it and wondering ‘why are we still in Canada?’”
Applying the tariff only to parts which aren’t compliant with the Canada-U.S.-Mexico agreement on trade’s rules of origin — meaning Canadian and Mexican parts wouldn’t be tariffed — would make a much bigger difference.
Why a lower tariff won’t reduce danger to Canada’s auto sector
“That would bring the effective tariff on most cars made here down to almost zero,” Mordue said.
Jim Stanford, chief economist at the Centre for Future Work, said the lower rate doesn’t change the danger.
“Any incremental change in the rate is helpful, but this is absolutely still an existential threat to investment in the Canadian auto sector in the long run,” said Stanford, who was formerly an economist with Unifor’s predecessor union Canadian Auto Workers. “This is still very bad. In no way can this be called a victory or a sustainable solution for Canada’s auto industry.”
Even if the official rate gets knocked a few percentage points lower than 15, Stanford said the tariffs imposed by Trump would still crush investment in the Canadian automotive industry.
“Even reducing it a bit is not going to change the problem,” said Stanford. “This is still a game-changer.”
U.S. automakers having been moving some production south
Already over the last year, noted McMaster’s Mordue, the Detroit Three automakers Ford, GM, and Stellantis have begun transferring products and shifts to U.S. plants, with ripple effects throughout Canada’s automotive parts industry.
Honda and Toyota, which account for the bulk of cars assembled in this country, don’t have as much spare capacity in the U.S. as the Detroit Three do, said Mordue. But even they would eventually start shifting production out of this country if the tariff stands, he predicted.
“They’ve already paid $5 billion in tariffs. They can’t keep doing that forever,” said Mordue. “Governments can’t just assume that they’ll be fine because they haven’t closed things down yet.
The knock-on impact of the tariffs would hurt Canada’s automotive parts manufacturers just as much as it would hit assembly plants, said long-time industry watcher Charlotte Yates.
“The parts industry has so far done pretty well, comparatively. But this is going to disrupt that,” said Yates, president emeritus of the University of Guelph.
And if automotive plants and parts manufacturers close up shop, they’d likely be gone for good, Yates argued. An industry built upon six decades of free trade would have a hard time bouncing back quickly, if at all, she added.
“Once the auto industry goes into a tailspin, I don’t know how you restore it,” said Yates, noting that Canada’s steel and aluminum sectors also face a double whammy of their own sector specific tariffs, and seeing their auto industry customers suffering.
And if Canada is hoping that they can wait out the Donald Trump administration in hopes of seeing a more trade-friendly face in the White House after the next presidential election, that’s a years-long delay an already-reeling industry can ill afford, Yates said.
“Waiting two or three years and hoping a tariff gets undone is very risky.”
