Trump Trade Deals Canada's Vital Auto Industry a Blow

New York Times

3 days ago

For decades, Canadians have been, by a wide margin, the world's largest buyers of cars and trucks made in the United States. In most years, four out of every 10 vehicles that roll out of Canadian dealerships were shipped from American factories.
But being the most important overseas market for America's vehicle industry has not insulated Canada's own auto industry from President Trump's move to unravel the global trading system. On Friday, Mr. Trump threatened to impose a new 35 percent tariff on Canada unless the two countries struck a deal.
But even before then, Mr. Trump's recent trade deals with Japan, Britain and the European Union meant that their auto exports would now be entering the United States at tariff rates lower than that on Canadian cars and trucks.
Though the details of the three trade deals still have to be worked out, Britain has agreed to a 10 percent tariff, while Europe and Japan will pay 15 percent. Canada's tariff rate stands at 25 percent.
'This is going to lead to the long-term uncompetitiveness of Canadian manufacturing,' said David Adams, the president of the Global Automakers of Canada, a trade group. 'The longer it goes on, the more likely it is that Trump is going to get exactly what he wants: the dissolution of the auto manufacturing base in Canada.'
Prime Minister Mark Carney said in June that his goal was to reach a deal that would effectively eliminate all U.S. tariffs on Canada — a return to the terms of the trade agreement the country, along with Mexico and the United States, signed during Mr. Trump's first term in office.
But the U.S. president has instead ratcheted up his aggressive stance by vowing to push up the tariff rate on Canadian goods.
And Mr. Carney's initial optimism that a deal could be reached has faded.
He has suggested that he will not necessarily accept any deal that includes tariffs simply to meet the president's deadline and is skeptical that the European and Japanese trade deals could provide a template for Canada.
He told reporters on Monday that Canada has many distinctions, including its 'geographic proximity' to the United States.
He added, 'We're in a different position.'
Tariffs are a major threat to Canada's export-dependent economy. Carmakers do get some relief from Mr. Trump's trade measures: They can deduct the value of American parts from the cars and the trucks that head to the United States, effectively lowering the final amount they pay.
But Canadian assembly lines ship about 70 to 80 percent of their production to the United States, and any significant tariffs that remain in place are likely to deal a devastating blow to the industry.
Mr. Adams said that given Mr. Trump's unpredictable approach to trade policy and negotiations, the value of any deal with Washington is unclear and unlikely to resolve the uncertainty around the industry.
'A lot of this, on its face, would seem to be verbal or written on the back of a napkin somewhere — there's nothing concrete,' he said. 'That is just going to lead to a lot of problems.'
Greig Mordue, a former senior executive with Toyota Motor Manufacturing Canada, said that Canada's auto industry had been long ailing regardless of its trade battle with the United States and needed to rethink its industrial policy.
'We have to understand and recognize that Canada needs to either manage the decline or embrace the new actors,' said Mr. Mordue, who is now a professor of manufacturing policy at McMaster University in Hamilton, Ontario.
That key actor should be China, he argued. Canada should remove tariffs of just over 100 percent on Chinese-made electric vehicles and instead encourage Chinese companies to set up facilities in Canada, which would generate new jobs.
'Chinese manufacturers are the global leaders in electrification, and the world just seems to have awoken to that,' Mr. Mordue said.