Auto sector bracing for ‘chaos’ amid Trump tariff threat
China might be the true target of Donald Trump’s threat to slap tariffs on vehicles exported to the United States, yet experts warn Canadian cities will suffer the worst collateral damage. And that damage could come even if the U.S. president never actually acts on his threats.
As many as one out of every five Ontario manufacturing jobs could be lost if the White House applies a 10 per cent levy on auto parts and a 25 per cent levy on completed vehicles, according to a TD Economics report published last month. That would put the livelihoods of more than 154,000 people at risk, the report found, but Charlotte Yates believes the localized impacts will be even more dramatic.
“This is a highly concentrated industry and it means that for certain populations [auto tariffs] will be devastating to everything from people buying groceries to local housing markets to clothes for their kids,” the principal investigator at McMaster University’s Automotive Policy Research Centre (APRC) told BNN Bloomberg via telephone, specifically citing the southern Ontario manufacturing hubs of Windsor, London and Oakville as being especially exposed.
Take Windsor as an example. Of the nearly 50,000 jobs that were lost in the Ontario manufacturing sector during the Great Recession, Windsor was home to more than one in four of them according to APRC research. The region has since recovered somewhat – the newly opened 6,000-person Fiat Chrysler factory, building Dodge Grand Caravans and Chrysler Pacificas, recently took the title of Canada’s largest manufacturing facility away from Syncrude in Fort McMurray – but Windsor mayor Drew Dilkens warns tariffs could derail that process
“A 25 per cent tariff on autos would have a very quick and a very significant impact on our regional economy,” Dilkens told Bloomberg Markets on Thursday. “We are concerned… the last thing we want to see is a tariff on autos.”
“It would have a ripple-through effect across entire communities as these are still very good jobs that would be lost,” Yates said. “I find it scary because I think it is possible.”
Her biggest fear is that just the threat of automotive tariffs will prove as damaging to the Canadian economy as the tariffs themselves.
“This kind of saber-rattling already puts so much uncertainty into the market that it can already affect supply decisions and investment decisions,” Yates said. “That means all the more innovative Canadian companies that are into the connected car market and so on, their chances of becoming a supplier to American companies are weakened.”
“Just worrying about [the possibility of auto tariffs] is enough to delay and slow certain kinds of investment decisions,” agreed Ken Delaney, a partner at Prism Economics and Analysis and an industry consultant for the APRC. “Right now this is having a chill on what automakers are thinking about doing.”
Those who think these particular threats from the White House will not translate into action, meanwhile, need to be mindful of China’s rising automotive might, argues Joseph D’Cruz.
“Without those tariffs, over the next five years or so, I expect China to begin exporting a significant number of cars to the United States,” the emeritus professor at the University of Toronto’s Rotman School of Management told BNN Bloomberg via telephone. “It is just a tiny trickle right now, but given the size of the Chinese production base and their ambition for global growth I think it is inevitable.”
“If there is a significant tariff imposed,” D’Cruz added, “then the Chinese could not penetrate the United States market [and] that would be a key reason why Trump could follow through with this.”
Tight integration of the North American auto market means on average, parts can cross back and forth across the Canada-U.S. border multiple times before making it into a fully assembled vehicle. Imposing tariffs on that kind of trade would create what Dennis DesRosiers calls a “paperwork nightmare.”
“When one component has the duty paid at the border, then goes into another component and goes back across the border again for the next stage of assembly, you’d have to pay that duty again then file a form with the government to get your duty back,” the principal of DesRosiers Automotive Consultants explained in a telephone interview with BNN Bloomberg.
“It would be very slow and tie up billions of dollars in capital for months to work through the paperwork,” DesRosiers said.
Making matters even worse for automakers is they lack the ability to measure the impact of tariffs on a wide variety of different vehicles.
“If a part is traveling across the border six to eight times that is going to get compounded, increasing the cost of certain components more than others, which offsets the costs of certain cars versus others,” explained Mahesh Nagarajan, a professor at the University of British Columbia’s Sauder School of Business with expertise in supply chain management.
“I don’t think the automakers even know the full costs themselves so that is going to be a mess,” he said. “They would have to trace the paths of various parts to determine what the costs would actually be and that is not an immediate thing that someone could just come and tell you [so] that is why so many of them panic.”
Mark Nantais, president of the Canadian Vehicle Manufacturing Association, confirmed the potential supply chain headache in a telephone interview with BNN Bloomberg.
“Some vehicles produced in Canada that are destined for the United States have higher levels of U.S. content than other vehicles we produce here,” Nantais said. “We even have some vehicles being assembled in Canada that have even more U.S. content than vehicles assembled in the United States.”
“At a minimum,” declared Prism’s Delaney on the immediate tariff fallout, “there will be some chaos.”