On Jan. 1, President Donald Trump has threatened to double tariffs on automotive parts and vehicles from Canada. This would raise the current 25% tariff to 50% if the two countries cannot work out a deal.
The ongoing trade war between Canada and the United States has only been escalating over the last few weeks and months. Both countries have been hitting each other with tariffs on specific goods such as liquor, timber and most importantly, vehicles and automotive parts. A doubling increase on tariffs would make access to these parts more expensive and harder to get for not just both countries, but also Mexico.
The North American auto industry operates across U.S., Canadian and Mexican borders for different parts and assembly for just one vehicle. A large 50% tariff would make the manufacturing process financially and logistically difficult as it would be much harder for the parts to be accessed. Therefore, the best-case scenario for Canada and the U.S. is to include Mexico in their agreement to allow for the North American auto industry to continue to work together.
What does this 50% tariff mean for us, the consumers and customers? Automakers cannot afford to pay for that tariff, meaning the costs will pass directly to consumers. Many car companies manufacture their vehicles in the U.S. and Canada such as Ford, Honda, Toyota and others. These companies will have no choice but to pass on that tax to the consumers because their vehicles are heavily reliant on Canadian auto parts.
Canada has also stated that they will match U.S. tariffs dollar for dollar, meaning they too would instate a 50% on U.S.-made vehicles and auto parts. This would, in turn, not only hurt American consumers but also Canadian consumers as well. Of course, these retaliatory tariffs wouldn’t just affect the auto industry, but many others like steel, aluminum, timber, liquor and electricity.
On Oct. 27, Honda Motor senior vice president executive Jennifer Thomas stated that 50% tariffs would be “really catastrophic for the industry.” She has been an advocate for a trilateral deal and agreement between the U.S., Canada and Mexico in order to keep productions and costs down. Trade associations representing various car brands like Honda have also been advocating for a trilateral deal instead of trade wars between the two countries.
Thomas then said that she remains cautiously optimistic about the doubling of tariffs not taking effect. Recent reports have come out that the U.S. and Canada have reestablished trade talks which also adds to the optimism. The Trump administration has also been negotiating trade deals with other countries such as Japan and South Korea that already have 15% tariffs on vehicles put in place.
The trade war between Canada and the U.S. is not slowing down or stopping any time soon. The longer that talks and negotiations keep on continuing, the more costs are going to continue to rise for American consumers. We will have to wait and see how the negotiations play out before the start of the new year.
