Industrial groups in Canada are preparing for “chaos and damage” which, they believe, will come from the American president Donald Trump25% price On all vehicle imports, a decision that could upset the highly integrated North American car supply chain.
Trump announced on Wednesday the last series of prices, signing a decree that will see a 25% rate imposed on the cars and light trucks of foreign manufacturing, in addition to the rates already in place on these goods.
Brian Kingston, president and chief executive officer of the Canadian Vehicle Manufacturing Association, said that this decision would have immediate consequences.
“American prices on vehicles and parts will have immediate negative consequences for the highly integrated North American automotive industry. The result is a higher cost for manufacturers, price increases for consumers and a less competitive industry,” Kingston said in a statement.
Kingston has urged the United States to consider exemptions for countries that are part of the Canada-UX-Mexico free trade agreement, which Americans call USMCA but are known as CUSMA in Canada.
“We continue to urge all the parts that all the parts, components and vehicles in accordance with the USMCA are free from prices under this agreement,” he said.
“It really starts to unroll what was a very successful commercial relationship between Canada, the United States and Mexico, especially in the automotive world.”
Darby added that the United States needs Canada and Mexico “because it cannot produce the parts and components they need”.
He said that the supply chain was so integrated, it would be very painful for the industry to separate it.
“Steel could be made in Canada, stamped in the United States and then brought back, assembled in a car here.”
Flavio Volpe, president of the Automotive Parts Manufacturing Association, said that the closure of the North American automotive industry could take place within the week following the entry into force of the prices.
“This will cause chaos and then the closure (from the North American automotive industry) in about a week on both sides of the border,” he said.
Volpe said Trump’s plan to try to bring these manufacturing jobs to the United States would fail due to the connection of their supply chains.
“You cannot get the omelette. Work in the American automotive sector and these factories are counting on aluminum and Canadian parts and tools, just as we are counting on American and raw materials and innovations and tools, and we are counting on American car companies. ”
Lana Payne, National President of Unifor, said Trump was unleashing “chaos and damage” of workers from both countries.
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“President Trump does not understand chaos and harms this rate inflicts on workers and consumers in Canada and the United States,” Payne said in a statement.
“Donald Trump convinced himself that, in one way or another, the jobs of Canadian automotive workers are his own.
How many jobs could be injured?
The Canadian Chamber of Commerce estimated that a third of Canadian jobs could potentially be affected by the automotive sector.
The room has pointed out that around 22% of North American vehicles are produced by the interconnected automotive supply chain between Michigan and Ontario.
He also underlined the estimates that the average cost of a North American van could increase by US $ 8,000 for Americans.
“The consequences of today’s escalation in this destructive tariff war will not be contained in Canada, as much as the US administration would like to pretend,” Candace Laing, president and chief executive officer of the Canadian Chamber of Commerce said in a statement.
“Depting tens of thousands of jobs on both sides of the border means abandoning the role of automotive leadership in North America, by encouraging companies to build and hire elsewhere, but here. This tax increase puts plants and workers in danger for generations, if not forever. ”
Is Canada to a recession?
Economists warn that car prices, coupled with other prices sets, could send Canada to rush to a recession.
Sal Guatieri, the main economic director of the Bank of Montreal, said that Canada would take until the end of the year to withdraw.
“We believe that the economy would risk a moderate recession. It could very well contract for the next two quarters before regaining moderate growth beyond,” he said.
He said it could pass Canada’s unemployment rate from 6.6% to eight percent, around 150,000 jobs. He believes that around half of all the layoffs of these prices could be in Ontario.
“About one percent of our GDP is derived by producing motor vehicles and parts in this country, and we send around a million motor vehicles south of the border in the United States each year,” he said.
Guatieri, however, added that these are projections the worst cases.
“Hope here is that we will see some withdrawals for Canadian products, vehicles and parts entering the United States, this already seems a little encouraging that at least the American content of these vehicles is not prices,” he said.
According to Trump’s decree, parts made in the United States will not be subject to prices.
How does the automotive sector work?
The automotive manufacturing sector and its supply chain in Canada and the United States have been deeply integrated since the 1960s.
In 1965, former Prime Minister Lester B. Pearson and former American president Lyndon B. Johnson signed the Canadian Automobile Products agreement in the United States, commonly known as Auto Pacte.
The agreement deleted prices on cars and automotive parts between the two countries.
This was in force until 1994, when the North American Free Trade Agreement (ALENA) entered into force, extending free trade to all sectors, not just the manufacture of cars.
In 2018, Alena was replaced by CUSMA, which was in place for renegotiation in 2026.
This means that decades and billions of dollars in facilities, infrastructure and contracts have been developed between car manufacturers and parts suppliers.
The American companies General Motors and Ford Motor Company each have three factories in Canada, while three belong to Stellantis, which partly belongs to the Americans.
According to the estimate of volpe, the costs of closing on nine factories alone are approximately $ 4.5 billion.
To build them from scratch in the United States, which has higher exchange rates and labor costs than Canada, would cost billions more.
In 2023, Volkswagen announced that it was investing $ 2 billion in the construction of a new factory in South Carolina. Volpe said that 2 billion US dollars are a fairly good estimate of the number of each factory would cost to build. For nine factories, it would cost $ 18 billion. For the 14 factories, it would cost $ 28 billion.
This estimate does not include the 26 car manufacturing factories in Mexico or the car manufacturing industry in Canada.
According to the manufacturing association of automotive parts, there are 1,400 facilities for parts and car tools in Canada. There are 156 parts and tools manufacturing facilities and tools belonging to Canadians in 18 American states, which employ 50,000 Americans.