Though it would be painful, AutoForecast Solutions vice president global vehicle forecasting Sam Fiorani said the Canadian automotive sector would be able to ride out the 25 per cent tariff U.S. President Donald Trump is threatening to impose Feb. 1.
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“The Canadian supplier industry is very strong,” said Fiorani, who is based in Pennsylvania.
“They’re a key component manufacturer for vehicles made on both sides of the border. They will find a way around it if it costs more to sell parts.
“I fully expect they’ll survive tariffs if applied to them.”
Trump has also threatened Mexico with similar tariffs on Feb. 1.
Fiorani said if Trump goes ahead with the tariffs, there’ll be a blizzard of legal challenges. The three nations already have a complex trading agreement covering the industry as part of the USMCA deal Trump negotiated with Canada and Mexico in his first term.
“No one is going to sit still if this happens,” Fiorani said.
“The idea that tariffs can be applied based on a national security rationale and to position Canada and Mexico as national security threats is a hard pill to swallow.
“The free-trade agreements of the last three decades have benefited the economies of Mexico, Canada and the U.S. Cutting off any country, will harm trade for the remaining two.”
TARIFF COST COULD BE GREATER THAN 25 PER CENT
With parts and finished products crisscrossing the border as many as seven times in the highly integrated automotive supply chain, the final tariff tally could end up being higher than 25 per cent.
“You have to think at least two or three of those times will be into the U.S. and the parts could be subject to a tariff each time, so yes it could be higher” Fiorani said.
“The value of those parts also goes up as they are assembled, so the tariff is larger.”
IMPACT ON AUTO INDUSTRY SUPPLY CHAINS
Tariffs will be difficult for U.S. automakers to handle given the extensive reliance they have on their Canadian and Mexican operations and suppliers.
For example, Ford Motor would be hit with a 25 per cent tariff on all its Windsor-built engines for its most profitable and best-selling vehicles – F-series Super Duty pickup trucks. The V-8 engines for those products are only built in Windsor.
Stellantis’s supply of Pacifica minivans and its iconic muscle car, the Dodge Charger, are also only produced in Windsor.
“Even though Ford is the No. 1 assembler of vehicles in the United States by a long shot, a lot of our supply chain depends on countries around the world,” said Ford Motor CEO Jim Farley at the Detroit Auto Show earlier this month. “Tariffs are really challenging for any company.”
Farley also confirmed Ford chairmen Bill Ford had already outlined the company’s concerns in meetings with Trump.
HOW WILL THE AUTO INDUSTRY REACT
Fiorani said suppliers and manufacturers are already preparing to begin moving products across the border in a way that reduces them to the fewest tariffs possible.
“Short-term changes that President Trump would make likely wouldn’t cause too much disturbance in the industry as the manufacturers and suppliers would need to absorb costs as long as they expect things to change in four years,” Fiorani said.
“Any change to the USMCA, would be long lasting and take us for another decade. Any changes in that trade deal would likely move plants around and shift workers from one plant to another.”
The USMCA is due for review in 2026.
OTHER AUTO INDUSTRY CONCERNS
Fiorani said the other major concern automakers have is Trump’s potential gutting of the Investment Reduction Act. The IRA contained a number of actions aimed at promoting green energy and mobility.
Ford Motor CEO Jim Farley said at the Detroit Auto Show the production credits contained in the IRA are crucial to the company.
Trump has already announced he plans to stop the $7,500 incentive for electric vehicles and loosen emission standards on internal combustion engines.
“The IRA incentives encouraged investment in North American production of parts and vehicles,” Fiorani said.
“Changing that will open up the market to global competitors and squash the transition to electric vehicles.
“The change in emission standards would allow manufacturers to build more (gas-powered vehicles) to the benefit of their bottom line in the short term, but to the detriment long term of their competitiveness globally.”
Fiorani said despite Trump’s anti-EV approach, automakers around the world are too far down the electrification road to turn back.
“Electrification is definitely where the industry is headed,” Fiorani said. “Trump’s actions would just extend how that happens.”
HOW WILL THE U.S. BE IMPACTED
Fiorani said the Canadian industry won’t suffer alone if Trump brings in tariffs and scraps the IRA. His actions will also create strong negative impacts for U.S. business and result in higher costs and unemployment for Americans.
“Tariffs are not a very good way to control anything,” Fiorani said.
“Jobs will certainly be lost in areas that were very pro-Trump if this comes to fruition. The offending countries won’t be paying tariffs; that cost will be passed onto American consumers.”
Most of the states that have benefitted from the large auto investments of the past four years have Republican leadership.
Unifor Local 200 president John D’Agnolo feels the message of shared economic pain is the key pressure point in gaining any leverage with Trump.
D’Agnolo said the Prime Minister’s Council Canada-U.S. Relations has been making that argument with American lawmakers this week in Washington D.C.
“There have been discussions Republican and Democrat leaders about the importance of this relationship,” D’Agnolo said. “Hopefully there’s some bipartisan ideas when it comes to tariffs.
“I think they will listen when you have states where it’s Republican leadership that don’t believe in tariffs.”
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