For the world, but especially for Mexico and Canada — respectively the United States’ largest and second largest trading partners — it has been a very long first quarter of 2025.
There is seemingly no rhyme nor reason to the tariffs imposed and, in some cases, subsequently withdrawn or postponed by the Trump administration.
It seems clear that there are those from whom the President is taking advice that differ wildly in their views of both the efficacy of tariffs and the impact on both the American economy and the stock markets.
The volatility and unpredictability of these tariffs has left many countries and industries waiting for the dust to settle before making any decisions one way or the other with respect to responding to the tariffs, when experience has taught us all that they may change the next day, or a week from now, or be postponed.
This would all seem to be evidence of chaos within the administration and the deployment of a “shoot first aim later” strategy with respect to tariffs where, at best, only short-term ramifications seem to be being contemplated without consideration for the medium or long term consequences — not to mention the unintended consequences of tariff actions.
That said, one does have to question why Canada seems to have drawn the ire of the President, when Mexico, the USMCA partner with legitimate fentanyl and illegal immigration issues, along with its side stepping of the USMCA with its exports to the U.S., as well as being a source of transhipments from China — seems to have dropped off of the President’s radar.
It could have something to do with the different approaches the two nations have taken with respect to the issue of tariff retaliation.
Mexico, so far, has remained relatively quiet on the whole tariff issue, preferring to spend its time in Washington using dialogue and diplomacy to deal with the situation. That said, Mexico has not been taunted and disrespected in the same way by the President the way that Canada has.
The other reality is the fact that there has been a federal election campaign ongoing here over the course of most of the tariff ups and downs and it is clear that the general public is looking for a leader and a government that is prepared to stand up to the United States and fight tariffs with tariffs.
If there were not an election taking place, the federal government may have made a different choice in terms of the decision to implement retaliatory tariffs, because… tariffs are taxes and ultimately end up costing our own citizens.
On the other hand, maybe not.
Our very sovereignty has been threatened and that has stirred up a nationalist sentiment in Canada that I have not witnessed in many years — if ever.
Nonetheless, the President has suggested that the U.S. not only doesn’t want our cars but doesn’t want our automotive industry to exist with the view that all of Canada’s production should be displaced to the United States.
The problem with this is that any repatriation of manufacturing to the United States means that the vehicles produced there will be more expensive for Americans and presumably Canadians to purchase.
But perhaps here is where the President hasn’t completely thought through this strategy. Canada is the largest market for U.S.-built vehicles with more than 40 per cent of all sales in Canada coming from vehicles built in the United States.
If you look at this in terms of the value of those sales, instead of sales units, that percentage is more like 50 per cent. What does that mean? Well, 40 per cent of Canadian sales represent about 720,000 units or call it three vehicle assembly facilities.
It is hard to imagine our leaders letting our vehicle manufacturers — that the federal and provincial governments have both invested in — depart without significant financial consequences.
Moreover, with our industry under threat, why would Canada allow American-built vehicles into our market without significant tariffs or, harkening back to the days of the Auto Pact, requiring manufacturers to build or invest where they sell?
This really is back to the future type stuff, given that the President seems to be not only disregarding but openly violating the existing USMCA/CUSMA agreement that he himself negotiated and called the “best agreement ever negotiated.” But it seems to be where we are headed unless we can find an off ramp for the roller coaster that has been Trump’s tariff announcements.
To be fair to the Republican administration, there has been at least some recognition of the USMCA/CUSMA in that vehicles exported from Canada to the United States (so long as they are USMCA compliant) are tariffed at the rate of 25 per cent less the American content in those exports.
Theoretically this gives Canadian built vehicles a cost advantage in the United States over imports from other countries that are tariffed at the full 25 per cent.
However, the reality is that under the automotive side letters to the USMCA with respect to 232 tariffs on autos they cannot even be implemented for 60 days should a decision be made to put 232 tariffs on Canadian vehicles. Even then, Canada has protected volumes of vehicles and parts that would not be affected by the implementation of 232 tariffs. So nothing about this is good.
To go back to the question of where it will end, that really remains unclear at this point in time.
As I write this the President has mused again about eliminating Canada’s automotive industry, all the while also musing about doing something on auto parts tariffs to give companies a bit more time to bring all parts manufacturing back to the United States.
The next shoe to fall will be the implementation (or postponement) of the automotive parts tariffs. You may recall that when the President implemented tariffs on Canadian automobiles, he delayed the implementation of the tariff on automotive parts (only because the U.S. Customs and Border Protection had no mechanism to deal with the tariff on automotive parts) until May 3rd.
We’ll see what happens then but this chaos on automotive tariffs cannot continue forever.
Let’s hope our new government will fulfill the commitment made by the President and Prime Minister Carney to start working on the new trading relationship between Canada and the United States as soon as possible with tariffs removed as negotiations ensue.
