"Tariff War: What Impact on the Automotive Industry and Consumers?"
American President Donald Trump kept his word and imposed on February 1st tariffs of 25% on the import of Canadian and Mexican products (10% on energy resources). In what marks the beginning of a true trade war, he also threatened to increase these tariffs if retaliatory measures are taken between the two countries.
That is exactly what Canada plans to do, considering the U.S. tariffs "unjustified and unreasonable." The federal government will proceed with its own 25% tariffs on $155 billion worth of imported U.S. goods, implemented in two phases.
Starting tomorrow, February 4, tariffs targeting $30 billion in U.S. imports will take effect. Among the affected products are tires.
Additional U.S. products worth approximately $125 billion will be added later this month. The list will be published in the coming days and will be subject to a 21-day public comment period before implementation. It will include products such as cars, trucks, and buses, as well as steel and aluminum products, among others.
The automotive industry at a standstill?
With supply chains and automotive production in North America being fully integrated (some parts cross borders multiple times before reaching the market and the roads), several analysts and industry representatives fear severe disruptions in factories across the three countries in the very short term, or even shutdowns, as few companies can absorb a 25% tariff. This is notably the view of the Automotive Parts Manufacturers’ Association, based in Canada.
Do you remember the blockade of the Ambassador Bridge between Detroit and Windsor by protesters in 2022? Shipments of parts were halted for four days, and this single event caused the industry an estimated loss of between $500 million and $1 billion.
More expensive or rarer vehicles
The alternative for some will be to try to pass the bill onto the next person and, ultimately, to the consumers. For now, car manufacturers are careful not to rush their decisions, which is wise, but the impacts of this tariff war will sooner or later be felt on the price of vehicles, both those sold in Canada and the United States.
Here, more specifically, the imposition of tariffs by the Trump administration is affecting the Canadian dollar, which continues to lose value. This consequence could, in turn, raise the price of vehicles imported from the United States
Finally, issues with the inventory of new vehicles may also arise if production is affected by tariffs. However, let us not forget about used vehicles: with the Canadian dollar so weak at the moment, Americans will be even more tempted to buy them from us – even though these vehicles will also be subject to a 25% tariff in the United States.
