The Canadian auto industry has been a particular focus of U.S. President Donald Trump’s tariff threats, with Trump indicating the desire to shift production to domestic American car manufacturers. However, experts suggest that this move could end up costing the U.S. billions of dollars and may not be feasible or worth the effort. The automobile manufacturing sector in Canada and the United States has been integrated since the 1960s, with policies in place to support this integration. The Canada-United States Automotive Products Agreement, known as the Auto Pact, was signed in 1965 and removed tariffs on cars and car parts between the two countries.
Decades of infrastructure, facilities, and contracts have been developed between car manufacturers and parts suppliers in Canada and the United States. The North American Free Trade Agreement (NAFTA) and the Canada-United States-Mexico Agreement (CUSMA) have further solidified trade relations in the auto industry. If tariffs were imposed by the U.S., car makers would have to incur significant costs to move production facilities to the U.S., including breaking contracts and abandoning infrastructure. The closure costs for nine plants in Canada alone would total around US$4.5 billion, with additional costs to build new plants in the U.S.
The cost to replace Canada’s and Mexico’s manufacturing bases would be substantial and could amount to billions of dollars. Rebuilding assembly plants would take years and cost billions more, making it a challenging and costly endeavor. Companies that would be forced to relocate might not survive the transitional period, potentially leading to bankruptcies. Uprooting plants that have been in place for decades and have seen significant investments in recent years to match advancements in the EV sector would mean writing off these investments and starting from scratch.
The advantages of keeping Canada and Mexico within the North American supply chain go beyond the monetary value, including the highly educated and skilled workforce in both countries. Canada, in particular, has the necessary minerals to build next-generation electric vehicle batteries, making it a crucial partner in the transition to EVs. With China’s dominance in the EV sector and Canada’s potential to compete in this market, maintaining the North American supply chain is seen as essential for the future of the automotive industry in the region.
Trump’s trade war and the imposition of tariffs could have negative consequences for the North American consumer, leading to more expensive cars, fewer choices, and a slower transition to EVs. The uncertainty surrounding trade relations and potential tariffs could disrupt the industry and impact consumer access to innovative technologies. In a global market where competition is fierce, maintaining strong partnerships and an integrated supply chain is crucial for the continued growth and success of the auto industry in North America.
