Impact of Tariffs on US-Canada Auto Trade

At the World Economic Forum, President Trump expressed hostility towards Canada in trade negotiations. However, tariffs on Canadian imports, as proposed by Trump, would damage not only this key trade partner but also American automakers and consumers.

Economic Consequences

TD Economics warns that a 25% tariff on Canadian-made autos and goods would have severe consequences:

* Auto Industry Impacts: The integrated nature of the auto sector, with parts and finished goods crossing borders, would lead to significant costs and negative impacts.

Onshoring Challenges

Trump's desire to bring production of Canadian-made cars to the US would face substantial obstacles:

* Plant Expansion: Adding 225,000 units to existing plants would require approximately six new US factories.
* Construction Costs: Building a single auto factory in the US could cost billions of dollars.

Consumer Costs

Tariffs would also impose a financial burden on consumers:

* Retail Price Hikes: Average US retail car prices could rise by $3,000.
* Trade Dislocations: Retaliatory actions could lead to trade disruptions and economic consequences for all three countries.

Downsides of Full Onshoring

Full-onshoring of North American production to the US would entail:

* Increased Production: A 75% boost in US production and over $50 billion in new investment.

Other Considerations

Tariffs would also affect the flow of auto parts and components between Canada, Mexico, and the US:

* Higher Import Costs: US automakers may need to import parts from other countries, increasing their costs.
* Aluminum Impact: Tariffs on Canadian aluminum would lead to higher prices for this essential auto part component.