If there’s one sector within the Canadian economic system that has confronted the actual focus of U.S. President Donald Trump‘s tariff threats, it’s Canada’s auto trade.
Trump has mentioned that he desires to “make the automobiles in Detroit,” indicating that he desires to exchange Canada’s trade with a totally home American automobile trade.
However consultants say it might find yourself costing the U.S. tens of billions of {dollars} and ultimately, the squeeze may not be well worth the juice.å
In an interview with Fox News earlier this month, Trump mentioned Canada “stole” the car trade from america.
“When you take a look at Canada, Canada has a really huge automobile trade. They stole it from us. They stole it as a result of our individuals had been asleep on the wheel,” Trump mentioned.
He added, “If we don’t make a cope with Canada, we’re going to place a giant tariff on automobiles. Might be a 50 or 100 per cent as a result of we don’t need their automobiles. We wish to make the automobiles in Detroit.”
However can that be accomplished?
A map depicting automobile manufacturing services in Canada.
“It’s not possible,” mentioned Brian Kingston, president and CEO of the Canadian Automobile Producers Affiliation. “It’s not real looking to onshore the whole lot of the North American automotive trade into america.”
He added, “We’ve had, for over 60 years, insurance policies which have been purposely designed to create an built-in North American trade.”
How does the auto sector work?
The car manufacturing sector and its provide chain in Canada and america have been deeply built-in because the Nineteen Sixties.
In 1965, former prime minister Lester B. Pearson and former U.S. president Lyndon B. Johnson signed the Canada–United States Automotive Merchandise Settlement, generally referred to as the Auto Pact.
Canada’s automotive components manufacturing trade, in numbers.
The settlement eliminated tariffs on automobiles and automobile components between the 2 nations.
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This was in impact till 1994, when the North American Free Commerce Settlement (NAFTA) went into impact, extending free commerce to all sectors, not simply automobile manufacturing.
In 2018, NAFTA was changed by the Canada-United States-Mexico Settlement (CUSMA), which is up for re-negotiation in 2026.
This has meant a long time and billions of {dollars} value of services, infrastructure and contracts which have been developed between automobile producers and components suppliers.
If Trump imposes tariffs, this may imply automobile makers must break a few of their contracts and abandon infrastructure to maneuver to the U.S.
Flavio Volpe, president of the Automotive Components Producers Affiliation, mentioned, “If you break a provider contract, you owe the cash. We predict closure prices are upwards of US$500 million on a (automobile manufacturing) plant.”
Canada has 14 automobile manufacturing services, all in Ontario.
American corporations Common Motors and Ford Motor Firm have three vegetation every in Canada, whereas three belong to Stellantis, which is partly American owned.
By Volpe’s estimate, closure prices on 9 vegetation alone could be round US$4.5 billion.
To construct them from scratch in america, which has increased forex charges and labour prices than Canada, would value billions extra.
In 2023, Volkswagen introduced they had been investing US$2 billion in constructing a brand new plant in South Carolina. Volpe mentioned US$2 billion is a reasonably good estimate for a way a lot every plant would value to construct. For 9 vegetation, that may value US$18 billion. For all 14 vegetation, it could value $28 billion.
This estimate contains neither the 26 automobile manufacturing vegetation in Mexico, nor Canada’s huge automobile components manufacturing trade.
“There are 1,400 components and instruments services in Canada. There are 156 Canadian owned components and instruments manufacturing services within the U.S. in 18 U.S. states that make use of 50,000 People,” Volpe mentioned.
Kingston mentioned, “Canada and Mexico had been chargeable for about 22 per cent of the autos consumed in america final yr.”
He added the associated fee to exchange each manufacturing bases could be “phenomenal.”
“US$50 billion to onshore the whole lot of the trade is a really conservative estimate. When you take a look at the quantity of funding that has been introduced by automakers and suppliers in North America since 2020, it’s over US$288 billion,” he mentioned.
It will additionally take a very long time, he mentioned.
“That might take years, anyplace from three years to a decade, to construct out meeting vegetation on that scale. And it could value billions of {dollars},” he mentioned.
Volpe mentioned a few of America’s huge automobile corporations may not survive that transitional decade.
“It’s an inconceivable hypothetical as a result of the businesses that you’d power to try this would go bankrupt,” he mentioned.
Dimitry Anastakis, professor on the Rotman College of Administration on the College of Toronto, mentioned, “You’d be actually speaking about uprooting vegetation which have been in place for many years the place corporations have spent billions of {dollars}.”
In recent times, automobile corporations have invested billions of their Canadian services to match China’s dominance within the EV sector.
To maneuver these vegetation would imply their investments must be written off.
“Stellantis has that plant in Windsor, the place they construct the Dodge Charger. They simply spent US$1.5 billion retooling that line in order that it may well construct each inside combustion engine Dodge Chargers and EV Dodge Chargers,” he mentioned.
“When you’re going to attempt to deliver that house, you’d principally be uprooting US$2 billion funding.”
Kingston mentioned the benefits of preserving Canada and Mexico throughout the North American provide chain transcend simply the greenback worth.
“What makes us so engaging is we’ve a extremely educated, extremely expert workforce. Now we have a historical past of automotive manufacturing and folks which can be very near the trade and have abilities that they will present to the trade,” he mentioned.
In 2024, Chinese language automaker BYD dethroned Elon Musk’s Tesla because the primary EV maker on this planet. Kingston mentioned the U.S. wants Canada to have any probability of beating China within the EV race.
“China controls about 80 per cent of the inputs that go into advance batteries. The one different supply that you’ve got within the Western Hemisphere is Canada. Canada has the total suite of minerals required to construct subsequent era electrical automobile batteries,” he mentioned.
Anastakis mentioned the North American shopper will endure the implications of Trump’s commerce battle.
“We in North America are going to face a future the place, if tariffs undergo and this uncertainty continues, automobiles are going to be way more costly. We’re going to have fewer selections on automobiles. We’re going to be driving fossil gasoline automobiles when the remainder of the world accelerates their transition to EVs,” he mentioned.
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