Canada-US Auto Tariffs: Pain Points and Impacts

Key Takeaways:

* Trump's proposed 25% tariffs on Canadian autos could severely harm the auto industry on both sides of the border.
* "High integration" in the auto sector means tariffs would have significant negative consequences.
* US auto plants would need to increase production by 225,000 units to onshore 10% of Canadian-made cars, requiring six new plants.
* Average US retail car prices could surge by $3,000.
* Full onshore production in the US would require a 75% increase in production and over $50 billion in investment.
* Tariffs would also impact auto parts and components, leading to higher costs for US automakers and consumers.

Background:

At the World Economic Forum in Davos, President Trump criticized Canada's trade practices and proposed tariffs on Canadian autos. A report from TD Economics outlines the potential consequences of such tariffs.

Impacts on the Auto Industry:

The high integration of the auto sector between Canada, the US, and Mexico means tariffs would disrupt supply chains and increase costs. Car parts and finished goods cross borders multiple times, leading to deep negative impacts on the industry.

Impacts on US Automakers and Consumers:

To onshore Canadian production, US auto plants would need to significantly increase production, potentially requiring six new plants. Conservative estimates suggest building a single auto factory in the US could cost billions. Tariffs could also lead to a rise in average US retail car prices by $3,000.

Full Onshoring: Cost-Prohibitive

Bringing full production of North American autos to the US would require a substantial increase in production and investment. The report estimates a 75% boost in production and over $50 billion in new investment.

Impact on Auto Parts and Components:

Tariffs would also disrupt the flow of auto parts and components between Canada, the US, and Mexico. US automakers would need to source components from other countries or onshore production, resulting in higher costs.

Aluminum Tariffs: Additional Concerns

Aluminum tariffs on Canadian imports could create price dislocations, leading to increased aluminum prices and higher costs for auto parts and the aerospace sector.