What lies ahead for this sector?
As US president Donald Trump’s planned 25% tariffs on Canadian vehicles loom, policy experts and political leaders are revisiting a long-abandoned idea: that Canada’s auto sector could survive independently of its southern neighbour.
Liberal leader Mark Carney addressed the issue directly last week, stating, “We can sustain an auto industry with the US having tariffs with access to other markets,” provided there’s deliberate partnership between government, business, and labour to “reimagine the auto sector.”
Tariffs on Canadian auto manufacturing
The proposed tariffs, scheduled to take effect today and begin collection tomorrow, would apply a 25% tax on all finished vehicles not manufactured in the US. The tariff would be reduced based on the value of any auto parts made in America.
A report from Financial Post noted that this threatens to unravel six decades of integration between Canadian and American auto manufacturing, cemented by the 1965 auto pact. Currently, 85% of vehicles manufactured in Canada are exported to the US.
Some analysts believe Canada has enough capacity to produce the roughly two million vehicles Canadians purchase each year.
“There’s certainly a strong economic argument to be made that we actually don’t have net exports in vehicles to the US,” said Bentley Allan, a professor at Johns Hopkins University and principal at the Ottawa-based Transition Accelerator think tank. “It’s pretty much an even trade, so let’s just bring all those exports of auto parts and autos back over on this side of the border.”
The idea would require existing manufacturers in Canada to continue producing models already built here, which include Honda Civics, Toyota RAV4s, and various sedans, SUVs, and pickup trucks.
This shift comes at a challenging time for Canada’s auto sector, which has already declined significantly. Production in 2024 was just under 1.3 million vehicles, a 55% drop from peak production of 2.9 million in the early 2000s.
If Trump’s tariffs halt Canadian auto production, losses could reach $330 million for each week of closure, with auto exports potentially decreasing by 6% or $550 million in 2025, according to Oxford Economists.
Carney’s proposal
Carney has proposed creating a $2-billion Strategic Response Fund to aid the sector during transformation, suggesting that by “backwards integrating” domestic steel and aluminum into auto production, the sector could pivot away from its US-based export model.
Adding complexity to the situation is the ongoing transition to electric vehicles. The federal and provincial governments have already committed $52.4 billion in support to automakers and battery companies investing in EV supply chains.
With vehicles ranking as Canada’s second-largest export at $51 billion, the impact of disruption would ripple through the entire economy.
“You cannot have the entire auto chain come to a crashing halt,” Steven Beatty, former corporate counsel to Toyota Canada, said in an interview with Financial Post. “Companies have to do their best to minimize the impacts and try to squeeze margins anywhere they can up and down the supply chain.”
