OTTAWA – Auto plants in Canada and the U.S. will start closing next week following the imposition of blanket 25% tariffs on all imports from Canada to the U.S. by President Donald Trump, the Ontario government warns.
Announcing aggressive responses to the tariffs, such as banning sales of American wine and liquor in Ontario and canceling a C$100 million ($68 million) contract with Elon Musk’s Starlink, provincial Premier Doug Ford says, “Assembly lines in the auto sector will shut down within 10 days, I predict.” He explains: “Because of the trade we do back and forth, the supply chain, the parts that many times go back and forth (across the U.S.-Canada border). Each time hitting a 25% tariff (when imported to the U.S.). I'm almost positive plants will shut down on both sides of the border.”
Ross McKenzie, former managing director of Ontario’s Centre for Automotive Research, tells WardsAuto the closures may happen sooner: “The market is so integrated you have a vehicle with components that are going back and forth across the border eight times before you assemble a vehicle: four crossings are subjected to a tariff.”
David Adams, Global Automakers of Canada CEO, says assemblers will struggle to adapt supply chain arrangements to reduce the amount of cross-border parts shipping. He says supplies are fixed by contracts, and “these are not easily changed.”
Both the governments of Canada and Ontario (where the vast majority of Canadian auto and parts production is located) reacted immediately to Trump’s imposition of tariffs from midnight March 4 by invoking emergency powers over an alleged flood of illicit drugs from Canada to the U.S. This even though only 43 lbs. (19.5 kg) of fentanyl was seized on the U.S.-Canadian border in 2024.
The Canadian government has now imposed retaliatory 25% tariffs on a list of U.S.-made goods whose trade is worth Canadian dollars C$30 billion ($20.8 billion).
This list will be expanded to goods covering C$155 billions’ ($107 billion) worth of trade by March 25 “if the current U.S. tariffs are maintained.”
Autos and most auto parts were not included in the Canadian list, but a range of tires, vehicle seat covers and recreational vehicle refrigerators imported from the U.S. will now attract a 25% duty.
The Canadian government says it is considering additional retaliatory measures, including non-tariff options and has launched disputes proceedings at the World Trade Organization and via the USMCA (US-Mexico-Canada Agreement) system.
Canadian Prime Minister Justin Trudeau was blunt when addressing the tariffs, speaking to Americans: “We don't want this. We want to work with you as a friend and ally.” He says the legal pretext behind the tariffs, “that Canada is apparently unwilling to help in the fight against illegal fentanyl...is totally false. Far less than 1% of fentanyl flows and 1% of illegal crossings into the United States come from Canada.” He quotes The Wall Street Journal, speaking direct to Trump: “They point out that even though you are a very smart guy, this is a very dumb thing to do.”
In the auto sector, Brian Kingston, president and CEO, Canadian Vehicle Manufacturers' Assn., says: “U.S. tariffs implemented today will do significant damage to the highly integrated North American automotive industry. This will undo over 60 years of integration that has fostered a globally competitive automotive industrial base.”
Adams adds both the federal and Ontario governments are looking for different types of supports for the Canadian auto sector, such as easy access to unemployment insurance.
Adams suggests public funding might help smaller and medium-sized Canadian parts manufacturers diversify their output during a pause in automotive trades, adding governments should ask, “What do companies need and want?”
The press secretary for Victor Fedeli, Ontario’s minister of economic development, job creation and trade, says his government “has been in close and frequent contact with companies across our automotive supply chain, including equipment manufacturers, tool and die manufacturers and critical mineral producers.”
As for market impacts, given Canadian exports of cars and light-duty vehicles were worth C$52.5 billion ($36.6 billion) in 2023, according to Statistics Canada, Adams says some OEMs might look to seize U.S. market share by utilizing their American plants, given the 25% tariff and the question: “Are (American) consumers prepared to pay more?”
But he wonders whether Canadian export price increases will be the full 25%: “Who knows what the companies will do with the extra costs?” Indeed, while competitors may look to take market share, they may also take the opportunity to increase their own prices, “so all vehicles become more expensive across the board.” This process, he says, is “antithetical to what (Trump) was elected on in terms of reducing inflation and reducing costs.”
Building auto and parts production replacement to replace Canadian imports will take time, says McKenzie, "maybe two to three years,” while the next U.S. midterm elections are in 19 months’ time, when Trump’s Republicans may lose control of Congress. He says tariffs would be ended by a response from the American people from resulting layoffs and income losses.
The U.S.-Canada auto industry “is not like a couple of eggs in a frying pan,” says McKenzie, referring to the current U.S. egg shortage: “They’re already scrambled. The President is trying to unscramble these eggs and repatriate production to the U.S. It can’t happen because of the integration that’s been in place since 1965” via the Canada-U.S. Auto Pact trade agreement, he says.
