Following a tense G7 Summit in Charlevoix, Que., U.S. President Donald Trump once again raised the threat of a 25 per cent tax on vehicle imports from Canada as a retaliation to Prime Minister Justin Trudeau’s dollar-for-dollar “countermeasure” tariffs on the aluminum and steel levy, which took effect in June.
The impact of these hefty tariffs, which sees aluminum taxed at 10 per cent and steel at 25 per cent, are expected to reach a broad range of industries — including the automobile sector and its many players: OEMs, parts suppliers, car dealers and consumers. But add to that the possibility of being slapped with a none-too-small tax on vehicle imports and the result may be a devastated car industry — with the new vehicle market taking a more drastic initial hit than sectors like used cars and vehicle parts.
“The auto industry is such a critical part of both countries’ economy,” said Brian Murphy, Vice President Research & Editorial, Canadian Black Book, in an interview with Canadian auto dealer. The tariff “is like the stone thrown in the pond, and the ripples across the pond affect new cars, used cars, car parts — not to mention OEMs, parts manufacturers and dealers’ future plans too.”
More specifically, anything that is exported from Canada to the U.S. in terms of new vehicles will see its demand drop as, presumably, the price to the U.S. consumer will have to rise since the OEM or car dealer will not be able to absorb the costs associated with a 25 per cent tariff. Murphy says it would be very different if the tax were, for example, only 3 per cent, but at 25 per cent costs will need to be passed along and that will inevitably trickle down to the consumer.
“The demand for products being exported out of Canada will diminish sharply — not just whole cars, but overtime, parts too,” says Murphy. “And then on the other side, for cars coming in from the U.S., I think Canadian consumers are a lot less likely to buy (a vehicle) when the price goes up by 25 per cent.”
There is a laundry list of issues and impacts to consider, including immediate job loss, but according to Murphy, many of the answers to a lot of questions that people have in the industry will only come when we know what the actual terms and conditions of the tariffs will be. “Which vehicles are affected, from what countries and by how much?” says Murphy. “And then of course, what is the Canadian government’s response?”
He adds that the expectation is that the Canadian government will just mirror whatever it is that the U.S. government puts in place.
