On April 2, 2025, U.S. President Donald Trump unveiled a sweeping new tariff strategy, introducing a universal 10% tariff on all imported goods, alongside “reciprocal tariffs” aimed at countries deemed to be engaging in unfair trade practices. While Canada and Mexico were exempt from this new round of tariffs due to existing trade agreements under USMCA, previous tariffs on key sectors—including automobiles, steel, and aluminum—remain in place.
Just days later, on April 26, Trump escalated his protectionist agenda further by announcing a 25% tariff on all imported cars and auto parts not manufactured in the United States. This automotive-specific tariff, set to take effect on April 3, applies globally—including to Canada, Mexico, Japan, South Korea, and the European Union—regardless of previous exemptions.
“What we’re going to be doing is a 25 percent tariff on all cars that are not made in the United States,” Trump declared. “If they’re made in the U.S., there is absolutely no tariff.”
This move is expected to send shockwaves through global auto-exporting nations, with a particularly harsh impact on Canada’s auto industry, which exports over 93% of its vehicles to the U.S. Trump also issued a warning to Canada and the EU, stating that any attempt at coordinated retaliation could trigger even higher tariffs on their exports.
🇨🇦 Canada’s Strong Response — With Caution
Canada’s reaction has been swift but measured. Prime Minister Mark Carney, serving in a caretaker role during the ongoing federal election campaign, has affirmed his opposition but refrained from detailing a countermeasure—likely awaiting further developments.
On March 28, Carney held his first phone call with Trump. The U.S. President later tweeted that the two had a “very productive” discussion and expressed optimism about future collaboration after Canada’s elections. The tone offered a faint glimmer of hope that Canada’s auto exports might avoid the harshest impacts—though history with Trump’s unpredictable policy changes leaves room for doubt.
🚘 Why Canada’s Auto Industry Is So Vulnerable
Canada ranks as the 11th largest auto producer in the world, manufacturing 1.55 million vehicles in 2023—more than France, the UK, or Italy. However, over 93% of these vehicles are exported to the United States, with $51 billion CAD in vehicle exports last year alone.
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Auto exports account for 10% of Canada’s manufacturing GDP
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The industry employs 128,000 people directly, mainly in Ontario
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Including suppliers and indirect jobs, the sector supports over 550,000 jobs
Canada doesn’t have domestic auto brands anymore. All assembly is done for foreign automakers, notably:
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Stellantis (Chrysler, Dodge, Jeep) – 2 major factories in Windsor and Brampton
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General Motors – engine and EV production in St. Catharines and Ingersoll
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Ford – Oakville plant, transitioning to EV trucks
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Toyota – over 540,000 vehicles produced in 2023
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Honda – nearly 500,000 CR-Vs and Civics produced
Beyond assembly, Canada is also home to 700+ auto parts manufacturers, including Magna International, the world’s third-largest supplier, with annual sales over $40 billion CAD.
⚙️ A Highly Integrated, Yet Vulnerable Ecosystem
Canada’s auto sector is deeply integrated into North America’s supply chain. A single part like a piston may cross the U.S.-Canada border multiple times during production. For instance:
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Aluminum is sourced from Quebec
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Forged in Ontario
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Machined in Michigan
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Assembled in Canada
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Installed in final vehicles back in the U.S.
This cross-border interdependence means that tariffs won’t just hurt Canadian jobs—they’ll disrupt American manufacturing, too.
🇺🇸 Why U.S. Automakers May Suffer
Ironically, Trump’s tariffs could harm U.S. automakers more than foreign competitors. Ford, GM, and Stellantis have invested billions in Canadian factories over decades. Shifting production back to the U.S. would require:
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$2–3 billion USD per new factory
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5–8 years to build
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Additional energy infrastructure, such as 6–8 new nuclear plants to power production
The auto industry’s complexity makes relocation neither quick nor affordable. In fact, after Trump’s announcement, U.S. auto stocks dropped sharply:
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GM fell 13% (from $53 to $46)
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Ford dropped 5.8%
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Stellantis declined 8.8%
Markets responded to the uncertainty, not optimism.
🌍 A Global View: Trade Wars Are Never One-Sided
Tariffs and trade protectionism are nothing new. Canada imposed 17.5% tariffs on U.S. cars in the 1950s. Today, Canada taxes Chinese EVs at 100%. The difference now is Trump’s aggressive, unilateral approach—slapping tariffs on steel, cars, drugs, and semiconductors from nearly every major trading partner.
Such unpredictability has eroded global trust in U.S. trade policy. Meanwhile, Wall Street has lost up to $4 trillion USD in value since Trump’s return to office, with the Dow down 5.5%, S&P down 7.75%, and Nasdaq down 12.3% in under three months.
🔋 Why Build in Canada?
Despite cost pressures, automakers prefer Canada over lower-cost regions like Mexico for several reasons:
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Weaker union activity and more stable labor relations
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Higher education levels and more immigrant workforce participation
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Abundant clean energy from hydro, wind, and nuclear
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Government incentives, especially in EV manufacturing
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Proximity to the U.S. market, minimizing logistics and marketing costs
Ontario has positioned itself as a global EV manufacturing hub, winning investments from Volkswagen, Volvo, and the Big Three U.S. automakers.
📉 Long-Term Impact
The auto industry’s supply chain isn’t easily rebuilt. A shortage of even one part—like a bolt—can halt production, as seen during the pandemic. If Trump’s tariffs take effect, they could:
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Reduce U.S. car production by 30%
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Increase prices by $5,000–$10,000 per vehicle
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Trigger supply chain disruptions across North America
Even if intended to bring jobs back to the U.S., these policies risk destroying the integrated system that has evolved over 80 years.
🇨🇦 What’s Next for Canada?
Canada’s auto industry may not regain full independence, but it can diversify beyond the U.S. Collaborations with Europe and China, along with expansion into EV technology and green manufacturing, can help cushion the blow.
In the meantime, Canada must navigate carefully—leveraging its strategic position in the global auto supply chain while preparing for increasing volatility in its largest trading partner.