ANALYSIS: Trump tariffs would hammer SW Ontario auto, agri-food sectors

LONDON, ONT. — Southwestern Ontario may be Ground Zero for the impact U.S. tariffs would have on the provincial economy, national economists warn.

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The region, heartland for automotive manufacturing and agriculture and food, would bear the brunt of the loss of 500,000 jobs forecast as a result of 25-per-cent tariffs threatened by U.S. President Donald Trump on Canadian-made goods sold into the U.S.

The threat to impose tariffs as soon as Saturday has sparked an Ontario election call and is forcing Ontario’s major political parties to define themselves on the critical issue.

“The two largest exporters are food and the auto sector, they are the most exposed,” said Alan Arcand, chief economist with the Canadian Manufacturers and Exporters that represents 2,500 companies.

The Canadian automotive industry sells 75 per cent of its goods to the U.S., compared to 45 per cent for all areas of manufacturing.

“The auto sector is the most vulnerable,” Arcand said.

The Ontario Finance Ministry forecasts the province would lose 500,000 jobs if the U.S. implements the full threatened tariffs. Arcand said he agrees with the projection as does Richard Forbes, principal economist with the Conference Board of Canada.

Forbes also agrees the automotive sector, followed by agri-food and the chemical sector, would bear the brunt of the tariff pain.

“It will be a huge hit for the (automotive) industry,” he said. “Agri-food is a big one as well. A lot of people are interested in cars but agri-food is a growing industry and it is exposed in the U.S.”

The Canadian Chamber of Commerce recently reported a 25 per cent tariff would cut Canada’s GDP — the value of goods made here — by about 2.6 per cent. The Conference Board has forecast GDP growth this year in Canada of about 1.5 per cent, meaning the tariffs could push Canada into a recession, Forbes said.

“Southwestern Ontario is more exposed, that is for sure,” he said. “You should hope that cooler heads prevail.”

The tariff is an extra cost imposed on goods imported into the U.S., collected by the importer and usually passed on to consumers. But it is a fee paid to the government.

“Trump wants businesses to set up shop in the U.S. and not in Canada to avoid tariffs,” Forbes said.

Recently, the Automotive News reported Linda Hasenfratz, chairperson of auto parts supplier Linamar Corp., warned the North America auto industry “will almost immediately grind to a halt” if there are steep tariffs imposed on goods from Canada and Mexico.

The Ontario auto sector is undergoing massive change, as automakers transition to electric vehicle manufacturing. That means massive investment is required into plants by industry, and many are now hesitating, Arcand said.

A recent survey of members of Canadian Manufacturers and Exporters found about 30 per cent are holding off investing in their businesses until they know if there will be a tariff war. Also, 22 per cent have imposed a hiring freeze.

“We are undergoing a pretty serious change right now. The threat of tariffs is creating uncertainty and forcing some members to postpone planned investments,” Arcand said.

“Uncertainty is a tax on the economy. Business needs a stable environment.”

Windsor has landed a $5-billion electric vehicle battery manufacturer for Stellantis that is being built. Volkswagen is building a $7-billion plant in St. Thomas for EV battery manufacturing.

GM Canada is assembling two EV commercial cargo vans at its Cami assembly plant in Ingersoll and added a battery plant there. Stellantis also has begun assembling a Charger EV vehicle in Windsor.

Honda is planning a $15-billion EV investment at its Alliston plant and Ford plans to begin manufacturing electric vehicles at its Oakville plant in 2027.

A sector undergoing such massive change is vulnerable, Arcand said.

“It is a huge threat to the industry and the auto sector is the most vulnerable. It is not a good thing at all.”

But the automotive sector is not alone in feeling the heat. Ontario’s chemical sector, which includes pharmaceuticals, sells 60 per cent of its product to the U.S. The U.S. market also buys 27 per cent of the Ontario agri-food industry production.

Arcand and Frobes both applauded federal initiatives if tariffs are imposed. They include retaliatory tariffs on U.S. goods sold into Canada, a stimulus package for Ontario business and industry similar to what was done during the COVID pandemic and lobbying.

Ottawa has officials working their way through Washington and meeting with U.S. counterparts to deliver the message tariffs would hurt America, too.

“It will take all that. If there are retaliatory tariffs it should be strategic,” Forbes said. “It would hurt the U.S. economy, cause inflationary pressure, especially in the energy sector.”

Forbes also said the financial services sector could suffer. If sales are slowed across different sectors, that will reduce demand for business services.

“The federal government is preparing a stimulus package as well and Ontario is going to retaliate in some sense,” Forbes said. “We will see some tariffs applied, but whether widespread or targeted, we do not know.”

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Where Ontario political leaders stand on U.S. tariffs

• Premier Doug Ford called an early election 16 months before his mandate was to end to deal with the threat of a tariff war. He has threatened retaliatory tariffs against the U.S., suggesting Ontario cut off electricity exports and remove U.S. products from LCBO outlets. Ford also has supported the idea of federal retaliatory measures and praised Ottawa’s response to improve border security to address U.S. concerns.
• NDP and Official Opposition Leader Marit Stiles called for support for Ontarians who may be out of work as a result of tariffs, and urged Ford to work with opposition parties on a co-ordinated plan. Both Ontario’s opposition parties said they would support emergency spending by the Progressive Conservative majority.
• Liberal Leader Bonnie Crombie criticized Ford’s decision to enter into a $100-million agreement with Starlink and Elon Musk, chief executive of Tesla and a Trump ally. Crombie also has said she agrees with Ford’s handling of the tariff issue, but wants a “multi-party task force” to offer a united response.