A potential trade war between the United States and Canada, involving tariffs on steel, aluminum, and possibly vehicles, is creating significant economic uncertainty for the auto industry. Industry experts warn that these tariffs could lead to increased vehicle prices for consumers, plant closures, and job losses in both countries. The situation escalated recently with President Donald Trump enacting 50% tariffs on approximately $20 billion worth of Canadian goods imported into the United States, effective August 22. Canada’s government responded by announcing dollar-for-dollar retaliatory tariffs set to begin on September 8.
The United States Mexico Canada Agreement (USMCA) is also at risk. The U.S. chose not to extend the free trade pact for another 16 years during its mandatory joint review on July 1, initiating an annual review process that keeps the current trade deal in effect through 2036. Many automakers have advocated for a revised USMCA that prioritizes domestic manufacturing and penalizes reliance on foreign imports.
President Trump has also threatened to double existing tariffs on imported vehicles and auto parts from Canada to 50%. Currently, a 25% tariff applies to all imported autos and auto parts, though Ford, General Motors, and Stellantis benefit from a USMCA rules of origin exemption, meaning compliant parts and vehicles are exempt or only taxed on non-U.S. content.
Patrick Anderson, CEO of Anderson Economic Group, stated that while the initial 338 tariffs on goods like feathers and hockey sticks were an annoyance, the threatened 50% tariffs on all cars, trucks, and automotive parts would be a severe blow to the auto industry in both nations. He predicted plant closures and numerous job losses in states like Michigan, Ohio, Indiana, and Wisconsin, as well as in Ontario, Canada. Anderson highlighted Michigan as the most vulnerable state to a U.S.-Canadian trade war, anticipating hits to agricultural exports, auto parts exports, and auto parts used in local assembly.
While Detroit automakers like Ford, General Motors, and Stellantis have not commented publicly on the USMCA situation or tariff threats, the American Automotive Policy Council, representing these companies, urged negotiators on August 25 to reach a deal that improves North American auto competitiveness and ensures a successful USMCA review. Honda Executive Vice President Noriya Kaihara indicated on August 23 that the company might need to raise prices if a new trade deal with Canada is not reached, and could potentially shelve plans for an eighth North American assembly plant if there is no USMCA agreement or if additional auto tariffs are imposed.
Data from January through August 23 reveals that Honda and Toyota are more dependent on Canadian manufacturing for their U.S. sales compared to the Detroit Three. Honda’s U.S. sales derive 20.9% from Canadian-made vehicles, while Toyota’s figure is 13.7%. In contrast, Stellantis sees 5.1% of its U.S. sales from Canadian-made vehicles, General Motors 4.5%, and Ford 0%. Vehicles made in Canada and imported to the U.S. include the Honda Civic and CR-V, Toyota Lexus NX, Lexus RX, and RAV4, Chrysler Pacifica, Dodge Charger, and Chevrolet Silverado Heavy Duty.
Sam Fiorani, vice president of Global Vehicle Forecasting at AutoForecast Solutions, warned that automakers would initially absorb additional costs but would eventually resort to price increases, reduced content, and limited availability of models or options. He also noted that a reduction in collaboration between the U.S. and Canada would diminish North America’s global competitiveness against regions like the European Union or China.
