Even with a one-month reprieve from U.S. tariffsfor automobiles in Canada and Mexico now in effect, automakers and analysts say it’s not enough time for much change to happen.
The exemption was announced by President Donald Trump on Wednesday, a day after he triggered a North American trade war with widespread tariffs of 25 per cent on most goods imported from Canada and Mexico going into effect.
Under the change, vehicles traded under the Canada-U.S.-Mexico Agreement (CUSMA) will be exempt from the tariffs, though White House press secretary Karoline Leavitt said the reciprocal tariffs set for April 2 will still go into effect and tariffs on steel and aluminum are set to kick in next week.
“The CVMA welcomes the U.S. tariff exemption provided for Canadian-manufactured vehicles and parts that meet stringent USMCA/CUSMA content requirements,” said Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers’ Association, which represents the Big Three automakers.
Kingston added the CVMA wants to work on a permanent solution that “recognizes the integration of the North American market.”
Some officials like Ontario Premier Doug Ford worry the reprieve is designed to move jobs to the U.S., something buoyed by Leavitt’s own comments to reporters Wednesday that Trump expects the companies will begin moving production as soon as possible to avoid tariffs.
But analysts and automakers say such a shift in a short time is unlikely.
“A prime objective is to induce, encourage, force companies that operate in Canada and Mexico and supply the U.S. market from there to relocate to the U.S.,” said Drew Fagan, a professor at the Munk School of Global Policy and Public Affairs.
“You can’t believe that in the vast majority of cases, especially with regards to goods production … that one month is anywhere near enough time.”
Linda Hasenfratz, the executive board chair for Linamar, which manufactures auto parts, said on a conference call with analysts that it “just does not make sense” for the company to shift some production to the U.S. to mitigate the effects of tariffs.
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She said that the company must focus on the long term, given the consistently changing landscape.
“That is not a premise to build a manufacturing strategy around. I mean, you’re not going to spend billions of dollars and months and months to shift production around and chase a tariff that’s here today, gone tomorrow, back the next day,” she told analysts on the call.
David Adams, president and CEO of the Global Automakers of Canada that represents multiple companies including Honda, Mazda and Toyota, told Global News the auto industry has a “super long planning horizon” and such a move or new investment could have a five- to 10-year time frame and cost billions of dollars, making it more unlikely.
What can automakers do during this pause?
But while a shift to the U.S. is unlikely in the short term, the 30-day reprieve won’t give much time to make major changes other than preparing for when the tariffs come back into force, in addition to the planned steel and aluminum tariffs set for March 12.
Adams said what likely can take place are tasks like contingency planning, scenario analysis and things to mitigate the impact of tariffs.
“I think people are trying to just stay calm and deal with what we know,” he said.
“That would be the ultimate hope, that that 30 days provides an opportunity to come to a more realistic and holistic solution for the industry and, ideally, for the whole economy, so that we’re not in this continuous yo-yoing back and forth of policy pronouncements.”
Keeping Canadian jobs in Canada
While automakers and analysts stress a short-term move to the U.S. is unlikely at this time, Canada has already taken actions to try and keep these companies in the country and, in turn, Canadian jobs at home.
Dimitry Anastakis, a professor at the Rotman School of Management, said in an interview the federal government and the provincial governments of Ontario and Quebec have already been proactive.
He cited recent investments and offers of subsidies to companies like Stellantis and Northvolt to build battery factories in Ontario and Quebec, respectively.
He added that the federal government helped incentivize the companies to stay through its rollout of subsidies.
“One of the smart things that the Canadian government did, it said, ‘Hey, we’re going to provide you with a little bit of upfront money, but any kind of subsidies that we do tack on which match the IRA (U.S. Inflation Reduction Act) will only come after production occurs,” Anastakis said.
Fagan cautions the idea of the companies moving is not a “moot point,” as new investments in the U.S. could still be made by those same companies.
Whether those current investments already in place would remain is “complicated.”
“Whether they would reconsider is a complicated issue based on where the final agreements are, what the funding was, what they think the risk is of considering, if any, from continuing to produce from Canada,” he said.
With the steel and aluminum tariffs set to take effect next week, and Trump saying Thursday he does not expect another carve out for automakers next month, Adams said he hopes the reprieve will lead to issues being addressed “through the process that’s been in place” under CUSMA.
“Let’s get back to some environment where what we say matters, the agreements that we signed matter and move forward on that basis,” Adams said.
— with files from The Canadian Press
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