Auto Industry, Car Shoppers to Be Heavily Impacted by Trade War
U.S. president Donald Trump kept his word and on February 1 implemented 25-percent tariffs on all products imported to the U.S. from Canada and Mexico (10 percent on Canadian energy). In what is likely the beginning of an all-out trade war, he has also threatened to increase those tariffs if the two countries retaliate with their own tariffs on U.S. goods.
That’s exactly what Canada plans to do, calling the Trump administration’s decision “unjustified and unreasonable.” The federal government will move forward with 25-percent tariffs on $155 billion worth of imported U.S. products.
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The first phase will be effective tomorrow, February 4, when tariffs are applied to $30 billion in goods imported from the U.S. Among them are tires.
An additional list of imported U.S. products, worth $125 billion, will be made available in the coming days for a 21-day public comment period prior to implementation. It will include products such as passenger vehicles, trucks and buses, as well as steel and aluminum products, among others.
Is Auto Industry Heading Toward a Crash?
Automotive production and supply chains in North America are fully integrated, with some parts crossing borders multiple times before hitting the market and landing on the road. Many analysts and industry representatives fear that vehicle and part factories in all three countries will be severely affected and potentially forced to close since few companies can or are willing to absorb the 25-percent tariffs. That’s what the Canadian-based Automotive Parts Manufacturers’ Association is thinking.
Remember when protestors blocked the Ambassador Bridge between Detroit and Windsor in 2022? Parts shipments were halted for just four days, yet that single event cost the industry close to an estimated $1 billion.
Vehicles Could Get Pricier and Rarer
The alternative for some will be to pay the tariffs forward, so consumers will end up as losers, too. At the moment, automakers are still waiting to make their moves, wisely opting not to rush into anything, but price hikes are most definitely coming both in Canada and the U.S.
North of the border, the falling Canadian dollar took another big blow in the wake of the new U.S. tariffs. This could in turn increase prices on vehicles imported from the U.S.
Inventory problems may also arise if new vehicle production is affected by tariffs. But let’s not forget used vehicles. With such a weak Canadian dollar, the Americans will be even more aggressive in pursuing units from Canada, even assuming that 25-percent tariffs apply in that case, too.
