By Sean Dougan
The Impact of a 100% Auto-Tariff on Canadian Cars and Parts: A Deep Dive into Economic Consequences
Since November 2024, Ontario’s economy has been grappling with challenges related to international trade with the United States, especially in sectors like automotive manufacturing, energy, and other tariffed industries. A report estimating the loss of 500,000 jobs due to a 20% tariff on Canadian goods has already raised significant concerns about the future. But what would happen if the situation escalated and the U.S. imposed a 100% tariff on Canadian cars and parts?
Canada’s automotive sector plays a crucial role in Ontario’s economy and the nation as a whole. The province is home to numerous car manufacturing plants and suppliers, with an intricate network of industries supporting everything from assembly to parts manufacturing, research and development, and logistics.
In 2019, the automotive industry contributed nearly 10% to Canada’s GDP, with Ontario producing a substantial portion of that output. In total, around 130,000 Canadians are directly employed in automotive manufacturing, and thousands more in related industries, such as steel production and logistics.
The Economic Implications of a 100% Tariff
The automotive industry is a cornerstone of Canada’s economy, particularly in Ontario, and the impact of a 100% tariff on Canadian cars and parts would be profound. If the U.S. were to impose such a tariff, the immediate economic consequences would be severe. A tariff of this magnitude would double the cost of Canadian exports to the U.S., making Canadian-made cars significantly less competitive in one of the world’s largest car markets.
Job losses would likely follow suit. While a 20% tariff was predicted to lead to the loss of 500,000 jobs, a 100% tariff could easily push this number to over 1 million jobs across Canada. This includes direct job losses in automotive manufacturing and a ripple effect in related industries. Suppliers of raw materials like steel and rubber would see major slowdowns, and service sectors tied to automotive production would also be affected.
In areas like Windsor and Oshawa, where entire communities depend on the automotive industry, the social cost would be high. Many workers would struggle to find new employment, leading to severe economic disruptions in regions already heavily invested in automotive production.
Historical Context: U.S.-Canada Automotive Relations
Canada has long been an important player in the U.S. automotive supply chain. However, its role has historically been less about building independent, competitive automotive brands and more about supporting American automotive giants like GM, Ford, and Chrysler. This dynamic has created a complex relationship where Canadian manufacturing is deeply intertwined with U.S. corporate interests.
The U.S. has strategically used its proximity to Canada to shape the country’s automotive industry, limiting the potential for Canada to develop a self-sustaining automotive sector that could rival American companies. Through trade agreements and regulatory measures, the U.S. has cultivated an environment where Canada’s automotive industry is dependent on American firms, rather than fostering independent growth.
The Role of Trade Agreements: NAFTA and USMCA
The North American Free Trade Agreement (NAFTA) and its successor, the United States-Mexico-Canada Agreement (USMCA), have significantly influenced the U.S.-Canada automotive relationship. While these agreements were designed to foster mutual benefit, in practice, they have reinforced U.S. dominance in the automotive industry.
For example, the USMCA’s rules of origin require that a significant portion of car parts be sourced from the U.S. or Mexico in order to qualify for duty-free trade. This provision, while ostensibly fair, effectively limits Canadian manufacturers’ ability to compete on a level playing field. Canadian companies are often relegated to secondary roles in a market dominated by U.S. giants, making it difficult for them to grow and innovate independently.
Additionally, U.S. policies, including financial incentives for American companies and trade barriers that favor U.S. exports, have made it harder for Canadian automakers to develop into serious competitors on the global stage.
Corporate Influence and Investment: GM’s Oshawa Plant Closure
One example of U.S. influence in Canada’s automotive sector is the closure of GM’s Oshawa plant in 2019. While the decision was driven by GM’s strategic shift toward electric vehicles and more profitable models, it also highlighted the broader trend of U.S. companies prioritizing their own interests over Canadian-based production. The closure of the Oshawa facility had a significant impact on Canada’s automotive manufacturing capacity, leaving the country dependent on American corporate priorities.
Furthermore, U.S. government policies and corporate practices have often worked to keep Canadian manufacturers from developing independent automotive ventures. By leveraging trade agreements, financial incentives, and regulatory measures, the U.S. has created an environment where Canada’s automotive sector is more focused on supporting American companies than on fostering domestic competition.
The Hypocrisy of a 100% Tariff
Given the historical context of U.S. influence on Canada’s automotive sector, it would be contradictory for the U.S. to impose a 100% tariff on Canadian cars and parts. After decades of shaping the industry to benefit U.S. interests, such a tariff would undermine the principles of fair trade and mutual cooperation that are supposed to govern North American economies.
If the U.S. were to take such a drastic step, it would send a message of hypocrisy, especially given the role that U.S. policies have played in preventing Canadian manufacturers from becoming serious competitors in the automotive industry. It would also risk deepening the economic divide between the two countries, undermining years of trade cooperation and potentially sparking a trade war.
A Counterproductive Move
A 100% tariff on Canadian cars would be a short-sighted move that harms both countries’ economies. While the immediate consequences would include widespread job losses and economic disruptions, the longer-term effects could be even more damaging. Such a tariff would also highlight the inconsistency of U.S. trade policies and their role in stifling Canadian competition in the automotive sector.
If the U.S. genuinely wants to foster fair competition and innovation, it must rethink its approach. This includes acknowledging the historical imbalance in the automotive industry and working to level the playing field for all manufacturers, regardless of their country of origin.