Trump's newest trade deals stoke fear for Canadian auto industry
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Auto industry analysts and labour leaders on both sides of the border have warned the two new U.S. trade frameworks with the European Union and Japan are ominous for the Canadian auto industry — and even problematic for the U.S.
Both agreements announced over the past week will impose a 15-per-cent tariff on imported vehicles to the U.S., which is lower than the 25-per-cent rate the domestic Detroit 3 themselves are facing for importing some of their own production from Canada and Mexico.
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“I’ve been hearing how much tariff can we live with as if something short of free trade works for North America, and it’s something I don’t get,” said Stephen Beatty, an independent consultant and retired Toyota Canada vice-president.
“If it’s only 12.5 per cent, would a company pay the duty or would they realign their manufacturing, so they didn’t have to pay it?
“That question leaves me concerned about the future of auto assembly in Canada,” he told the Star. “Why pay additional costs just to be on this side of the border?”
The Japanese and EU automakers had been facing a 27.5-per-cent tariff. The lower tariff rates will still trim billions annually off their companies’ bottom lines.
Beatty said the only duty rate that can ensure the Canadian industry’s future is zero per cent, unless the government is willing to initiate retaliatory tariffs or incentivize duty free market access for companies maintaining a production footprint in Canada.
“I wouldn’t rush into an August 1 deal,” Beatty said, referring to this week’s deadline Canada and the U.S. have set for such an agreement.
“What people underestimate is the American car companies need the Canadian market. We have cards to play and we better understand how to play them.”
Unifor’s chair of the national auto council, John D’Agnolo, fears that with some clarity on tariffs, the Japanese/EU companies now have a pricing advantage. He said it’s difficult to understand the logic of having a lower tariff rate on vehicles with no American content than what is currently being applied to Detroit 3 products.
“It’s going to hurt the Detroit 3 and the U.S.,” said D’Agnolo, who is also president of Unifor Local 200. “Costs are going to go up, sales will go down and jobs will be lost.
“For Canada, we must have something like the Auto Pact. Trump is trying everything in his power to take jobs from this country.
“We have to do something to compel companies to build in Canada. I’ve personally told (Prime Minister) Mark Carney that.”
D’Agnolo also expects companies will have to raise vehicle prices in the second half of the year, pushing a new vehicle further out of reach for the average consumer.
He added the EU and Japanese will now be able to source their parts, steel, aluminum and copper tariff-free from the cheapest source, produce vehicles abroad and face only a 15 per cent tariff when exporting them to the U.S.
Those companies would face higher prices for all those tariffed imported components under the various sector tariffs now in place if they were manufacturing in the U.S.
“I don’t think we’ll get a better deal,” D’Agnolo said. “Just look at aluminum. They don’t really make it.
“He (Trump) doesn’t care that it’s costing companies — he’s done nothing but attack Canada.”
AutoForecast Solutions vice-president of global vehicle forecasting Sam Fiorani doesn’t expect the Japanese and EU deals to lead to significantly increased production in the U.S. by those automakers.
“Most of the EU vehicles affected by this are low-volume models and it makes no sense to build a plant in the U.S.,” Fiorani said. “They’ll just add five or 10 per cent to the price to compensate for the tariffs.
“Most of the large-volume Japanese vehicles are already being manufactured here. You may see a couple of models added, but not a lot of production jobs in the U.S.”
Fiorani said what’s more likely is a reduction of choice, elimination of entry-level vehicles and declines in sales and production, leading eventually to a loss of jobs in the industry.
Those negative sentiments are shared by the organization that represents the Detroit 3’s interests in the U.S.
“Any deal that charges a lower tariff for Japanese imports with virtually no U.S. content than the tariff imposed on North American-built vehicles with high U.S. content is a bad deal for U.S. industry and U.S. auto workers,” American Automotive Policy Council president Matt Blunt said in a statement.
Even the United Auto Workers, who have been supportive of U.S. President Donald Trump’s use of tariffs to bring more automotive manufacturing back to the U.S., erupted with fury.
“The UAW is deeply angered by the Trump administration’s announced trade deal with Japan,” the UAW stated in a press release.
“What we’ve seen so far makes one thing clear: American workers are once again being left behind. For decades, Japanese automakers have exploited open access to the U.S. market while failing to do right by American workers.
“Now, instead of addressing the problem, this deal gives them another break — at the expense of the very companies and workers that built the American auto industry into the global standard for good jobs and world-class products.”
Beatty said the U.S.’s tariff policy and change in direction on electric vehicles threaten to isolate that nation.
“They could end up being a bit of a technological backwater, especially with the arrival of the Chinese,” Beatty said. “Pulling away from electric-powered transportation, emission standards and fuel economy is not a progressive path.”
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