Canada-US Trade: Tariffs on Autos Would Hurt Both Countries

President Trump's proposed tariffs on Canadian autos could have severe consequences for the North American auto industry and consumers.

Impact on the Auto Sector

The report "Setting the Record Straight on Canada-US Trade" by Toronto-based TD Economics highlights the high cost of tariffs on Canadian-made autos. The auto sector is highly integrated, with parts and finished goods crossing borders. Tariffs would significantly increase costs and harm the industry.

US Production Shortages and Cost Increases

If Canada's 10% share of US car sales were to be moved to US factories, six new plants would be required. Estimates for building a single auto factory in the US exceed $1 billion. Additionally, average US retail car prices could rise by $3,000.

Trade Dislocations and Economic Consequences

Retaliation from Canada and Mexico could lead to trade dislocations and significant economic consequences in all three countries. Demand could collapse.

Full-Onshoring and Investment Requirements

Onshoring all non-US production would require a 75% increase in US production and over $50 billion in investment, a costly proposition.

Impact on Auto Parts and Components

Tariffs would also disrupt the flow of auto parts and components between Canada, Mexico, and the US, increasing costs for US automakers.

Effects on Aluminum Supply and Prices

Tariffs on Canadian aluminum would create a "massive tariff dislocation," leading to higher aluminum prices, which would impact consumers.

Overall, the report concludes that Trump's proposed tariffs on Canadian autos would have negative consequences for both countries, harming the auto industry, consumers, and the economy.