As the trade war waged on Canada by the U.S. intensifies, the retaliatory 25-percent tariffs imposed by the former on the latter’s exports will hit one specific group particularly hard. Ford, General Motors, and Stellantis rely heavily rely on vehicles assembled in the U.S. to supply the Canadian market, and they now find themselves at the heart of the conflict.
According to Jato Dynamics, the majority of vehicles sold by the three carmakers in Canada comes directly from their American plants. As a result, they will be more exposed than other auto manufacturers.
Tariff amounts depend on North American content
The new Canadian rules do take into account the origin of vehicles’ components. For one, Mexican parts are exempt. Beyond that, if a vehicle is composed of 80-percent American parts and 20-percent Canadian or Mexican content, the levy will only apply to the American portion. That equates, in this example, to an effective tax of 20 percent.
However, if the vehicle does not comply with the rules of the current CUSMA free trade agreement, the tariff is 25 percent on the entire value of the vehicle.
Growing pressure on the Canadian industry
The Canadian government led by Mark Carney has opened the door to a “tariff remission” system for manufacturers who maintain or develop production within Canada.
Stellantis announced the temporary closure of its Ontario plant this week, directly citing the uncertainty related to customs tariffs.
Carney said last week that all revenues accrued from collecting the counter-tariffs “will go directly to our autoworkers and the companies affected by those tariffs,” so as not to penalize them.
Imminent price increases for consumers
According to Brian Kingston, CEO of the Canadian Vehicle Manufacturers' Association (which includes GM, Ford and Stellantis), vehicle prices are expected to rise by between $6,600 and $17,000 CAD ($4,700 and $12,000 USD) in the coming weeks. Driving those increases will be the tariffs themselves, but also the complicated logistics of tracing component origins.
"The industry is being asked for a degree of supply chain disaggregation never seen before," says Kingston. "American tariffs further complicate the task for Canadian producers."
The risks of dependence
In 2024, 44 percent of new light vehicles sold in Canada came from American plants, as per Jato Dynamics. The country remains massively dependent on the American market, both for imports and exports.
For Andrew King, senior partner at DesRosiers Automotive Consultants, recent events reveal the structural fragility of this model:
"Despite the delusional rhetoric and erroneous calculations from Washington, the era when Canada was a net exporter in the automotive sector is over. We are now discovering the risks of concentrating 95 percent of our exports to a single country."
Towards a realignment of the Canadian auto industry
Between the trade war, cost pressures and regulatory adjustments, the Canadian automotive industry could be on the verge of a major reconfiguration of its industrial priorities. And if American manufacturers continue to bear the brunt of Washington's political decisions, they may well revise their North American strategy sooner than expected.
