Canadian-built vehicle sales will take a devastating hit that could decimate the auto industry on both sides of the border
In the U.S., the base price of a Toyota RAV4 is about $24,500 (all prices in U.S. dollars). If Donald Trump continues to huff and puff and blow his house down with proposed tariffs, that same vehicle could cost as much as $33,861. Because many of those vehicles are made here in Canada and exported to the U.S., he will blow our house down, as well.
We won’t just be caught in the crossfire of an international trade war; we’ll be in the crosshairs.
About 20 vehicle models that are sold in the U.S. are currently manufactured here in Canada. If Trump’s proposed 25 per cent tariff on that industry goes through, it would be a total disaster, according to Jerry Dias, president of Unifor, the union representing Canadian auto workers. “Nearly 85 per cent of the vehicles we produce are exported to the American market. But he would destroy his own workers with these tariffs, too.”
That’s because many components – both small and major – that are used in the Canadian-built vehicles of Chrysler, Ford, General Motors, Honda and Toyota are sourced from south of the border.
That said, Dias thinks it unlikely the scenario will play out as threatened. “Trump is playing politics ahead of the fall mid-term elections,” he explains. The reality of the economics wouldn’t just destroy our auto industry, it would wreak havoc on the American one, as well. “60 per cent of the parts for our industry come from the U.S.,” says Dias. “Trump will have to address how thousands of laid off workers there will affected.” This is before tariffs applied from major steel suppliers like China are factored into the equation. Trump is tugging on a thread and threatening to unravel an entire sweater. If the world were a sweater.
“It’s playing well with the U.S. unions,” says Dias. “People may not realize, however, that the U.S. Steelworkers Union has more forestry members than steel; we need their steel for our cars, but they need our softwood timber more than ever. Fires and floods are taking their toll, these tariffs are coming straight down to the consumer.” Those members cheering the tariffs would do well to remember just how many parts Canada buys, and how many Americans will be out of work, too. The damage will land everywhere, including on Trump’s own voters. Dias notes that statements from American unions declare their support for Trump’s tariffs, but also include an asterisk: “except for Canada”.
Just how much would this tariff add to car costs? According to a recent study, in addition to that RAV4, four other Canadian-built vehicles are part of the top 20 sellers in the U.S. The Honda CR-V would see a price increase between $2,454 to $3,075; Chevrolet Equinox, $6,131 to $8,499; Toyota Corolla, $1,952 to 2,370; Honda Civic, $2,223 to 2,769. Because we export the majority of what we make, our own prices would skyrocket alongside. We can’t produce cars at a fraction of the numbers and expect the same economies of scale.
While Dias doesn’t believe the tariffs will actually come to fruition (“Workers on both sides will be massacred; common sense will prevail”), he notes that auto manufacturers will wield the biggest stick. “They won’t reward stupidity, to make Trump happy. There will be zero investment unless they can base it on a sound business plan.” Threats and tariffs are the opposite of sound, and billions of dollars in investments will either be parked or moved elsewhere. This is true for both sides of the border, which means Trump is poisoning his own well.
Automotive consultant Dennis DesRosiers is more blunt. “This would be the most devastating economic event in the history of Canada,” he warns. With one in seven jobs in this country tied directly or indirectly to the automotive sector, he warns the domino effect could result in a fallout worse than the depression of the 1930s. “Canadian vehicles make up ten per cent of the American market,” explains DesRosiers. “Add in Mexico and other markets he’s threatened, and you’re looking at forty per cent of their market. The American industry at the dealer level alone employs 1.5 million people. Reduce that by 40 per cent, and he’s blowing up his own country.”
If you’re thinking that American buyers can easily work around Canadian concerns, remember that they import a lot more vehicles and parts than just Canadian ones. Even the top-selling and quintessentially American vehicles – pickup trucks – will take a hit because of Canadian- and Mexican-made parts: Ford F-Series prices could rise from $2,572 to $5,746; Chevy Silverado, $3,993 to $7,650; Ram 1500, $3,063 to $6,298. If you work in the auto industry, there will be nowhere to export your parts to, and chances are excellent that every major manufacturer just pulled a handbrake on future investment.
The problem? The ripple effects of even just threats and ultimatums are real. “Canada exported some $63 billion (Cdn) worth of automobiles in 2016, 96 per cent of which was to the U.S., according to Statistics Canada and the U.S. Census Bureau. On top of that, the country exported roughly $21 billion (Cdn) in auto parts in 2016 – 90 per cent of which was shipped south of the border…” according to a CBC report. The threat is real, and it is immediate. We’ve lived through the implosion of the auto industry in the recent past, and we’re all smart enough to recognize that it’s not just businesses that shutter, it’s entire communities.
DesRosiers confirms the Trump administration threat is outrageously ridiculous, yet also says, “With such an idiot, I give it equal chances. I never underestimate how foolish a fool can be.”
I hope Dias is right, and the manufacturers will refuse to play with the kid who keeps threatening to take his ball and go home.