Tariffs on Canadian Auto Imports: Impact on US Auto Industry and Consumers

Davos, Switzerland - President Donald Trump's proposed 25% tariff on Canadian-made autos would have severe consequences for the US auto industry and consumers, according to a report by TD Economics.

Auto Sector Integration:

The highly integrated nature of the auto sector, with parts and finished goods crossing borders, means tariffs would increase costs significantly and negatively impact the industry. Canada currently produces approximately 10% of cars sold in the US, while Mexico supplies nearly 20%.

Onshoring Costs:

To onshore Canadian production to the US, TD estimates that US auto plants would require an additional 225,000 units of production capacity, requiring approximately six new plants. Building a single auto factory in the US could cost billions of dollars, not including operating expenses.

Consumer Impact:

Tariffs could raise average US retail car prices by roughly $3,000, depending on retaliation by Canada and Mexico. Severe trade disruptions and economic consequences could result, leading to collapsed demand in all three countries.

Full-Onshoring:

Fully onshoring North American production to the US would require a 75% increase in production and over $50 billion in investment, making it cost-prohibitive.

Auto Part and Component Impacts:

Tariffs would also affect the flow of auto parts and components between Canada, Mexico, and the US, increasing costs for US automakers and consumers. Aluminum, a critical component in auto parts and aerospace, could see higher prices due to tariffs on Canadian imports.