Industry groups in Canada are bracing for the “chaos and damage” they say will come from U.S. President Donald Trump’s 25 per cent tariffs on all vehicle imports, a move that could upend the highly integrated North American auto supply chain.
Trump announced the latest set of tariffs on Wednesday, signing an executive order that will see a 25 per cent tariff imposed on foreign-made cars and light trucks, in addition to tariffs already in place on those goods.
Brian Kingston, president and CEO of the Canadian Vehicles Manufacturing Association, said the move would have immediate consequences.
“U.S. tariffs on vehicles and parts will have immediate negative consequences for the highly integrated North American automotive industry. The result is higher costs for manufacturers, price increases for consumers, and a less competitive industry,” Kingston said in a statement.
Kingston urged the U.S. to consider exemptions for countries that are part of the Canada-U.S.-Mexico free trade agreement, which Americans refer to as the USMCA but is known as CUSMA in Canada.
“We continue to urge all parties that all USMCA-compliant parts, components, and vehicles be free of tariffs under that agreement,” he said.
“This is really starting to unwind what has been a very successful trade relationship between Canada, the U.S. and Mexico, especially in the automotive world.”
Darby added that the U.S. needs Canada and Mexico “because they cannot produce the parts and the components that they need.”
He said the supply chain was so integrated, it would be very painful for industry to pry it apart.
“The steel might be made in Canada, stamped in the U.S. and then brought back in, assembled in a car here.”
Flavio Volpe, president of the Automotive Parts Manufacturing Association, said Trump’s move only benefits China.
“I have never heard something less clear or based in fact in my life. China could only dream of damaging the American auto industry so quickly and so decisively as what Trump is threatening to do here again,” Volpe said in a social media post.
Volpe said Trump was “putting in peril the jobs of hundreds of thousands of auto workers.”
Lana Payne, national president of Unifor, said Trump was unleashing “chaos and damage” on workers in both countries.
“President Trump fails to understand the chaos and damage this tariff will inflict on workers and consumers in both Canada and the United States,” Payne said in a statement.
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“Donald Trump has convinced himself that, somehow, the jobs of Canadian autoworkers are his to claim. We have built cars here for over a century, long before the U.S. was our primary trade partner. I will state this as clearly and unequivocally as I can. These are not his jobs to take.”
How many jobs could be hurt?
The Canadian Chamber of Commerce estimated that one-third of Canadian jobs could potentially be impacted by the auto sector.
The chamber pointed out that around 22 per cent of North American vehicles are produced by the interconnected automotive supply chain between Michigan and Ontario.
It also pointed to estimates that said the average cost of a North American pickup truck could rise by US$8,000 for Americans.
“The consequences of today’s escalation in this destructive tariff war will not be contained to Canada, as much as the U.S. administration would like to pretend,” Candace Laing, president and CEO of the Canadian Chamber of Commerce, said in a statement.
“Throwing away tens of thousands of jobs on both sides of the border will mean giving up North America’s auto leadership role, instead encouraging companies to build and hire anywhere else but here. This tax hike puts plants and workers at risk for generations, if not forever.”
Is Canada heading into a recession?
Economists are warning that the auto tariffs, coupled with other sets of tariffs, could send Canada hurtling towards a recession.
Sal Guatieri, senior economic director at the Bank of Montreal, said it will take Canada till the end of the year to claw out of it.
“We believe the economy would be at risk of a moderate recession. It could very well contract for the next couple of quarters before resuming some moderate growth beyond that,” he said.
He said this could raise Canada’s unemployment rate from 6.6 per cent to eight per cent, or roughly around 150,000 jobs. He estimates that around half of all layoffs from these tariffs could be in Ontario.
“About one per cent of our GDP is derived by producing motor vehicles and parts in this country, and we send about one million motor vehicles south of the border to the U.S. each year,” he said.
Guatieri added, however, that these are worst-case projections.
“The hope here is that we will see some carve outs for Canadian produce, vehicles and parts that go into the U.S. It already looks a bit encouraging that at least the U.S. content of those vehicles will not be tariffs,” he said.
According to Trump’s executive order, parts manufactured in the U.S. will not be subject to tariffs.
How does the auto sector work?
The automobile manufacturing sector and its supply chain in Canada and the United States have been deeply integrated since the 1960s.
In 1965, former prime minister Lester B. Pearson and former U.S. president Lyndon B. Johnson signed the Canada–United States Automotive Products Agreement, commonly known as the Auto Pact.
The agreement removed tariffs on cars and car parts between the two countries.
This was in effect until 1994, when the North American Free Trade Agreement (NAFTA) went into effect, extending free trade to all sectors, not just car manufacturing.
In 2018, NAFTA was replaced by CUSMA, which is up for re-negotiation in 2026.
This has meant decades and billions of dollars worth of facilities, infrastructure and contracts have been developed between car manufacturers and parts suppliers.
American companies General Motors and Ford Motor Company have three plants each in Canada, while three belong to Stellantis, which is partly American-owned.
By Volpe’s estimate, closure costs on nine plants alone would be around US$4.5 billion.
To build them from scratch in the United States, which has higher currency rates and labour costs than Canada, would cost billions more.
In 2023, Volkswagen announced it was investing US$2 billion in building a new plant in South Carolina. Volpe said US$2 billion is a pretty good estimate for how much each plant would cost to build. For nine plants, that would cost US$18 billion. For all 14 plants, it would cost $28 billion.
This estimate includes neither the 26 car manufacturing plants in Mexico, nor Canada’s vast car parts manufacturing industry.
According to the Automotive Parts Manufacturing Association, there are 1,400 auto parts and tools facilities in Canada. There are 156 Canadian-owned parts and tools manufacturing facilities in 18 U.S. states, which employ 50,000 Americans.
Canada’s auto sector braces for ‘chaos and damage’ from Trump tariffs
