Let chaos reign …
The roller coaster ride continues as, while drafting this article, the White House signals yet another possible flip flop on tariffs. On April 14th President Donald Trump apparently suggested that he might temporarily exempt the auto industry from tariffs he previously imposed on the sector, to give carmakers time to adjust their supply
chains.
Don’t get too excited. This sounds like telling a condemned prisoner his execution will be delayed.
Of course, we all know, U.S. President Donald Trump announced plans for tariffs to take effect as of April 3rd.
These new tariffs will immediately apply to CUSMA/USMCAoriginating automobiles.
Importers of CUSMA/USMCA-compliant automobiles can exclude the value of U.S. content from the duty calculation.
While excluding the value of U.S. content may help reduce the impact of the duties on importers, the process of determining the origin of various automobile components and their value is a daunting and labour-intensive task. There is no room for error. All origin claims must be substantiated through submitting documentation to the U.S. Secretary of Commerce.
Having said that, early indications are that most of the vehicles manufactured in Ontario contain about 50% U.S. parts, meaning tariffs on those vehicles would be about 12.5%. Still nothing to celebrate.
The executive order contemplates applying the 25% duty to imports of the targeted automobile parts as well as automobiles, but temporarily suspends this tariff in relation to CUSMA/USMCA originating parts until a mechanism for calculating U.S. value content similar to the automobile exclusion is established, which is required by no later than May 3, 2025.
Contrary to Trump’s wildest dreams, experts predict this will drive up prices and stymie production on both sides of the border.
Tariffs will drive the costs of cars higher for consumers by thousands of dollars, hitting new vehicle sales and resulting in job losses in the U.S., since the U.S. automotive industry relies heavily on imported parts,
according to the Center for Automotive Research.
The U.S. imported US$474 billion worth of automotive products in 2024, including passenger cars worth $220 billion. Mexico, Japan, South Korea, Canada and Germany, all close U.S. allies, were the biggest suppliers.
For U.S. buyers Cox Automotive forecast that $3,000 would be added to the cost of a US-made vehicle and $6,000 on a vehicle made in Canada or Mexico.
Cox expects disruption to “virtually all” North American vehicle production leading to 20,000 fewer vehicles produced per day, or about a 30 per cent hit to production.
Trump’s stance marks the end of a decades-long period of Canada-U.S. free trade in automobiles. In fact, Trump is imposing higher U.S. tariffs than existed before the 1965 Auto Pact.
We question the U.S. administration’s grasp of the complexities involved.
Nearly three-quarters of Canada’s auto jobs involve parts, not finished vehicles, but the vast majority of those finished vehicles are exported to the U.S.
It takes years to build new assembly plants, meaning new supply lines won’t magically appear in the U.S. overnight.
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said it’s creating paralyzing uncertainty for the industry — and not just in Canada.
The constant, always-evolving, tariff threat is also scaring investors in the U.S., he told CBC News.
“[Trump] moves the sticks twice a day,” he said. “You don’t know what to expect when you get up in the morning.”
Unlike the rest of the world, Canada actually buys more cars and parts from the U.S. than it sells.
The Canadian and Mexican tariffs will be damaging to most automakers, which depend on neighbouring countries not just for some of their production, but for a large share of the parts they use to assemble cars.
“If you build your car in the United States, there is no tariffs,” Trump told journalists at the Oval Office. But in fact, the executive order he was signing placed tariffs on more than half of the parts used to build cars at U.S. plants.
President Donald Trump hopes that the auto tariffs he is imposing will lead automakers to shift their car production, and their supply chains, to American factories. Not so fast!
While automakers are seeing “a lot of cost and a lot of chaos” from Trump’s tariff threats, as Ford CEO Jim Farley said at an investor conference, they’re still not going to build new plants. At least not immediately.
Part of that is because Trump’s on-again-off-again levies don’t provide the certainty that automakers need to invest billions of dollars in new plants.
“If they become permanent, then there’s a whole bunch of different things that you have to think about, in terms of where do you allocate plants, do you move plants, etc,” General Motors CFO Paul Jacobson told investors last month.
But, he said, the company has too many questions about the future of trade policy to make those kinds of decisions at this time.
“Those are questions that just don’t have an answer today,” he said. “Think about a world where we’re spending billions in capital, and then it ends. We can’t be whipsawing the business back and forth.”
Even something as seemingly simple as switching a factory to make a different model can shut the plant down for a year or more. It takes years for an automaker to go from announcing a new factory to the first car rolling off the assembly line.
Unfortunately, as previously observed, chaos and uncertainly seem to be what we might call the ‘new normal’ for the next 4 years.
