With trade talks between the United States and Canada collapsing, the U.S. tariff on Canadian-made automobiles will double to 50% starting next year. As the two countries clash head-on with retaliatory tariffs, concerns are growing that the entire local auto supply chain will inevitably take a hit.
U.S. President Donald Trump recently said he would impose a 50% tariff on Canadian-made automobiles, auto parts, and trucks starting Jan. 1 next year. That is double the current 25% tariff rate. The auto industry had expected U.S.-Canada trade talks to conclude so the tariffs on Canadian passenger cars and light trucks would drop from 25% to 15%. But with the talks falling through, the rate is set to jump twofold instead of being reduced.
If the conflict between the two countries drags on, the burden on the auto industry could grow even heavier. Vehicles made in Canada account for about 6% of U.S. auto sales last year, but General Motors (GM), Ford, Stellantis, Toyota, and Honda, which have production bases in Canada, are expected to shoulder significant additional expense.
An auto industry executive told Reuters, "When Jan. 1 comes next year, we cannot end up in a situation where Canada is treated like China," and added, "Canada is a major market for U.S.-made automobiles and parts, and a significant amount of U.S.-made parts go into the cars Canada exports." The 50% tariff Canada has been warned of is on par with the tariff applied to some gasoline vehicles imported from China.
About 17% of production of Chevrolet Silverado, GM's top-selling model, is Canadian-made. Chrysler Pacifica, Stellantis' flagship minivan, is produced entirely in Canada. Ford also plans to bring its Super Duty heavy trucks produced at its Oakville plant in Ontario, Canada, into the United States.
Toyota and Honda also appear likely to take a big hit. The two companies produced more than 75% of the 1.2 million automobiles made in Canada last year and exported a significant number to the United States. A senior Honda executive warned that if the United States-Mexico-Canada Agreement (USMCA) is not extended, the company may not build its eighth assembly plant in North America.
The U.S. auto industry argues that the move puts it at a competitive disadvantage compared with Asian and European companies. Under a separate trade deal the United States signed last year, Asian- and European-made automobiles face a 15% tariff. By contrast, Canadian-made automobiles, with which U.S. companies share supply chains, are set to face a 50% tariff starting next year.
The Trump administration is also considering requiring that half of the parts be U.S.-made for Canadian- and Mexican-made automobiles to qualify for lower tariffs. Asian- and European-made automobiles face no such requirement to use U.S.-made or North American-made parts.
Within the auto industry, there is some hope that, with time left until Jan. 1 next year, the two countries could reach a deal before the tariffs take effect. But with the Canadian government saying it will impose retaliatory tariffs on U.S.-made products and President Trump making clear he will not back down, the outlook for talks is growing murkier.
In a phone interview on the conservative-leaning radio show "The Glenn Beck Program" on the 26th (local time), President Trump said, "It is now time to teach Canada that it can no longer do this," adding, "We are losing $60 billion a year or more on trade with Canada."
The White House also launched a public campaign against Canada. On its official X account (formerly Twitter), the White House posted an image of a bald eagle, a symbol of the United States, subduing a Canada goose on ice. The day before, it emphasized that "Trump is ending Canada's free ride," noting that the U.S. economy is 13 times the size of Canada's and its population eight times larger.