Commonwealth_ President Donald Trump’s repeated threats of tariffs on Canadian imports, including a potential 100% tariff on Canadian-made automobiles, have raised serious concerns within Canada’s auto sector. Experts warn that these tariffs could lead to significant disruptions in supply chains, work stoppages, and financial strain on manufacturers. Despite the alarm, experts suggest that the solution isn’t necessarily to focus on building cars solely for the Canadian market but to look beyond the traditional “north-south” integration of trade between Canada and the U.S. Canada has long enjoyed a strong manufacturing sector, particularly in the auto industry, with five global car manufacturers operating in the country. According to Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers’ Association (CVMA), Canada’s auto sector has become highly integrated with the U.S. market, resulting in a significant number of cars being assembled in Canada but primarily sold in the U.S. “
The industry has been designed around this north-south integration,” Kingston said. He added that imposing tariffs on Canadian goods, particularly vehicles, could lead to inefficiencies and increase production costs. Currently, Canadians purchase fewer than two million vehicles annually, which is approximately the same number that is assembled within the country. However, the bulk of the cars produced in Canada are destined for the U.S. market. This strong reliance on cross-border trade has led to an integrated supply chain in which car parts are frequently moved back and forth between Canada and the U.S. as vehicles are assembled. If tariffs disrupt this free flow of parts, the entire auto manufacturing process could be halted, leading to significant delays and work stoppages, according to Kingston. Trump’s stance on Canadian-made cars has been clear. He has repeatedly stated that he prefers vehicles to be built in Detroit rather than in Canada. His aggressive tariff proposals, which include a 25% tariff on Canadian steel and aluminum, set to take effect in March, have added to the uncertainty. On January 20, Trump also threatened to impose a 100% tariff on Canadian automobiles unless the U.S. can secure a favorable trade deal with Canada.
This rhetoric has shaken the Canadian auto industry, which has been reliant on trade agreements such as the North American Free Trade Agreement (NAFTA) and its successor, the United States-Mexico-Canada Agreement (USMCA). The consequences of tariffs on auto parts and vehicles would be significant, given the integrated nature of the sector. Dimitry Anastakis, a professor at the Rotman School of Management at the University of Toronto, explained that car components routinely cross the Canada-U.S. border multiple times before the final product is assembled. Tariffs have the potential to disrupt this well-functioning system, leading to supply chain bottlenecks and halting production at plants in both countries. The impact could be especially severe in Canada, where a large portion of the auto industry’s output is sent south of the border. Despite these challenges, some have suggested that Canada should focus on producing vehicles exclusively for its domestic market. However, experts argue that this approach is neither sustainable nor practical.
Peter Frise, a professor of mechanical and automotive engineering at the University of Windsor, noted that while designing cars for the Canadian market may seem like a “cute idea,” it is not a viable long-term solution. Frise, who was part of a team that tried to design a Canadian car, explained that industry leaders dismissed the idea, stating it would be economically unfeasible. The failure of other countries to sustain domestic auto industries serves as a cautionary tale for Canada. For example, Australia attempted for many years to build its own auto manufacturing sector but ultimately failed to remain competitive. Dennis Darby, president and CEO of Canadian Manufacturers and Exporters, pointed to Australia’s struggles as evidence that building a domestic auto industry in Canada would likely not be a sustainable option. “It was absolutely out of the question,” Frise said, describing the strong resistance from industry to the idea of a Canadian-made car.
