Trump is threatening new Canadian auto tariffs. That will hurt US automakers and workers

 

Vehicles parked outside the GM Assembly plant in Oshawa, Ontario. President Donald Trump has announced plans to impose a 50% tariff on Canadian cars and auto parts as of January 1.

Carlos Osorio/Reuters

President Donald Trump’s threat of 50% auto tariffs on all imports from Canada is just the latest action to rattle an industry that’s endured shifting trade rules since he returned to office.

Trump issued the auto tariff plans early Monday, just as trade tensions between the two neighbors ratcheted up. On Saturday, the US slapped 50% tariffs on a much more limited group of Canadian exports after efforts to strike a deal collapsed.

But the steep auto tariffs, if enacted, could disrupt long-established business practices and have far-reaching consequences across the auto industry, experts say.

“Sweaters, honey and hockey sticks are not a trade war. What the president just threatened this morning is a trade war,” said Patrick Anderson, CEO of Anderson Economic Group, a Michigan-based consulting firm. “It would be a body blow to the auto industry. We would see plants closing on both sides of the border.”

Canada does have a large trade surplus with the United States. But when it comes to the auto industry, it’s the opposite — the US has a nearly $1 billion a month trade surplus with Canada.

America imported $24.5 billion worth of Canadian vehicles and auto parts in the first six months of this year, according to Commerce Department trade data, compared to the $30.4 billion Canada imported.

Since the North American Free Trade Agreement was first introduced in the 90s, and then the US-Mexico-Canada Agreement during Trump’s first term, the auto industry has been able to operate as if North America is a single market. Companies move parts and vehicles freely across borders, often multiple times before the car is assembled and sent to dealer showrooms.

Trucks cross the Ambassador Bridge connecting Windsor, Canada, to Detroit. The flow of vehicles between the two countries could be severely reduced if Trump implements 50% tariffs on Canadian cars and auto parts.

Jeff Kowalsky/AFP/Getty Images

Even with last year’s auto tariffs, that process continued. That’s because carve-outs greatly reduced the cost of the 25% tariffs that were put in place on Canadian cars and parts.

Automakers could deduct the value of the US parts that went into Canadian-made vehicles, said Anderson. They could even deduct the value of Canadian-made parts if they complied with the terms of the USMCA.