One economist says he expects vehicle sales in both the U.S. and Canada to fall drastically amid trade tensions between the countries.
U.S. President Donald Trump signed an executive order on Saturday to impose a 25 per cent tariff on all goods from Canada taking effect Tuesday, with the exception of energy which would be taxed at 10 per cent.
The move prompted a response from Canadian officials to impose 25 per cent tariffs on a list of U.S. products, which included automotive parts among other strategically selected products.
Andrew Foran, an economist at TD Bank, highlighted in a report last week that the U.S. and Canadian automotive industries are highly connected with parts crossing national borders “half a dozen times before final assembly.”
“Proposed blanket tariffs of 25 per cent on Canada and Mexico, if retaliated against in equal measure, would likely result in a material contraction in vehicle sales in all three North American nations as price increases would ripple through supply chains,” Foran said.
“The broader negative economic outcomes associated with this scenario would likely limit its political durability, but the North American auto industry should still prepare itself for a prolonged period of elevated trade uncertainty and potential trade disruptions.”
According to Foran, the automotive industry accounts for more than 10 per cent of “intraregional trade in North America” along with hundreds of billions of dollars in cross border trade and millions of jobs.
Vehicle sales would be impacted by the direct impact tariffs would have on vehicle prices, alongside the more indirect impacts tariffs would have on the broader economy, the report said.
Foran noted that free trade in the Canada-U.S. automotive sector has existed for “over sixty years” with the first bilateral agreement coming into effect in 1965.
“With deep historical roots, it is unsurprising that the automobile industry is one of the most highly integrated in North America, with parts sometimes crossing a border half a dozen times before final assembly of a vehicle,” he said.
“This highlights the acute vulnerability posed to the industry, including the hundreds of billions of dollars in regional trade it generates annually, by potential tariffs that have been proposed by the new U.S. administration.”
Auto industry players also shared concerns about the impact tariffs could have. Flavio Volpe, the president of the Automotive Parts Manufacturers Association, said in a post to X Friday that he predicts North American vehicle and auto parts production to halt by March 7.
Prediction:
— Flavio Volpe, C.M. (@FlavioVolpe1)
North American vehicle & auto parts production grinds to a halt by March 7th. https://t.co/BvP8Mebikf
USMCA
Given the U.S.-Canada-Mexico Agreement (USMCA), negotiated by Trump in his first term, Foran said regional trade grievances should be raised under existing dispute settlement mechanisms in the agreement.
Alternatively, he said disputes could be raised during the first review of the agreement scheduled to occur in 2026.
“Unilateral deviations from the USMCA outside of these mechanisms that either directly or indirectly target the automotive industry are likely to result in material trade dislocations, higher costs for consumers, and slower economic growth,” Foran said in the report.
