Trump’s tariff threats are affecting Canada’s auto industry

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Canadian auto executives are anxiously waiting to see if Donald Trump makes good on his threat to impose a 25 percent tariff on all Canadian auto imports after he takes his second term as president of the United States in January.

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More than 91 percent of Canadian auto parts are shipped to the US, and some parts cross the US or Mexican border up to eight times before they are included in the final assembly.

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That means the stakes are high in an industry already troubled by the cost and uncertainty of making the transition to electric vehicles, considered one of the biggest industrial revolutions in history.

In addition, industry insiders say the auto sector is still reeling from several years of other challenges, such as semiconductor shortages that have depressed production and high interest rates and inflation that have dampened consumer demand.

As a result, many inside the auto industry are on edge about the impact of the 25 percent tax.

“Looking at the history with Trump and his negotiating tactics, it’s clear that it’s a threat to start a conversation,” said James Carter, an industry consultant at Toronto-based Vision Mobility and a former Toyota Motor Corp. sales and marketing firm. officer, said.

“Will this happen? That’s a very good question, but I think it’s really worth thinking about how Canada, Mexico and the US are connected … especially in cars, right across the border, and it’s many, many, billions of dollars, maybe every month. “

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The threat of tariffs, as stated by Trump on social media, so far has no concrete details.

On November 25, he said on his social media platform Truth Social that one of his first orders would be to apply 25% tariffs on all products entering the US from Canada and Mexico in retaliation for illegal immigrants and drug traffickers. across borders.

Any payments will come as Canadian auto production recovers. Total car production in the country has been slowly returning to nearly 2 million vehicles after falling to 1.1 million vehicles in 2021 due to infrastructure and pandemic-related challenges, according to CEIC Data, an independent macroeconomic firm. , and TD Economics.

Trump imposed tariffs on Canadian steel and aluminum of 25 percent and 10 percent, respectively, during his last term.

He first imposed tariffs on aluminum, about 40 percent of which is used in Canada’s auto sector, in June 2018 and lasted until May 2019. They were reinstated in August 2020, but ended the following month.

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Those tariffs caused a temporary disruption to both steel and aluminum exports to the US, but export levels rebounded within two to three years, according to a Bank of Nova Scotia report released earlier this month.

That history has led many to believe that Trump will follow through on his threat to impose a 25 percent tariff.

Some say the International Emergency Economic Powers Act gives the US president broad powers to control economic affairs through executive orders – meaning it would allow Trump to impose tariffs without Congressional action.

The hope is that such prices will be short-lived, said one industry insider who asked not to be identified because of the sensitivity of the topic. He said car companies may have started stockpiling in the US to avoid the impact of the tax.

“What we’re trying to talk to members about right now is to be a little more patient,” said Collin Shaw, president of the Motor & Equipment Manufacturer’s Association, a trade association that represents auto parts manufacturers across North America.

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He said the profits of his members have decreased in recent years due to many factors including the increase in the price of consumables due to inflation and the increase in labor costs.

But when it comes to how long the tariffs will last and whether they will be implemented, he said there is uncertainty.

“Right now, it’s all speculation,” Shaw said. “What I do know is that we have a lot of members who use the entire ecosystem” in North America.

Jean Simard, president of the Aluminum Association of Canada, a trade organization based in Montreal, said the impact of the last round of tariffs was huge for American consumers, and that could be the case with any new tariffs.

“It’s going to be very dangerous for downstream users in the US,” he said of aluminum.

Automakers accept the cost increase, he said, and then it must be passed on to the consumer.

“Your Ford F-150 is going to cost more,” Simard said.

• Email: gfriedman@postmedia.com

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