Auto analysts expect Trump’s tariff focus on China, Mexico, not Canada

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The automotive landscape has changed dramatically since U.S. president-elect Donald Trump’s first term, and some auto analysts feel that may just help the Canadian industry remain a secondary target — initially at least.

“The Trump administration has a lot of targets and Canada is at the back of the line for the moment,” said Sam Fiorani, AutoForecast Solutions vice-president of global auto forecasting.

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“The focus currently is on Mexico and China. Trump is more interested at focusing on where he feels the U.S. is being taken advantage of.

“Mexico is our (the U.S.’s) largest trade partner. However, a lot of that is one-way from Mexico to the U.S.

“Canada is more important to the U.S GDP because a lot of products go back and forth.”

Fiorani added the American government, including the current administration of Joe Biden, feels China tops that list of nations playing unfairly. The Chinese interest in setting up shop in Mexico to ship vehicles into the U.S. under CUSMA trade agreement rules has tied the two nations together.

“Imports from Mexico and China are also more on the mind of voters than vehicles coming from Canada,” Fiorani said. “A lot of what’s being built in Canada is also by U.S. automakers, so you’d be hurting American companies.

“Also, a lot of the recent export and tariff positions taken on Chinese EVs and steel by Canada are positioning the country as an ally to the Trump administration.”

European industry will also be a bigger target before Canada, he added.

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“That’s a lot to get through in four years,” Fiorani said. “His term may run out before he ever gets to the Canadian automotive industry.”

Automotive Parts Manufacturers’ Association president Flavio Volpe agrees with Fiorani’s assessment and confirmed the 100 per cent tariff on Chinese electric vehicles and the 25 per cent tariff on Chinese steel has played well south of the border.

Volpe was part of the Canadian negotiating team that helped craft the CUSMA trade agreement with the Trump administration in his first term.

“We had (Deputy Prime Minister) Chrystia Freeland at an event (last week) and she told us Prime Minister Trudeau had talked with President Trump and shared with him the news of the Chinese tariffs,” Volpe said. “She said that news was received very warmly by Trump.”

Volpe added the CUSMA agreement that Trump pushed for in his first term addresses a lot of the possible trade irritants in the industry. The deal sets tariff targets on Canadian exported vehicles, domestic parts content and wage levels.

The deal can be reopened for changes in 2026.

“There’s just not a lot of juice left to get from squeezing the Canadian automotive industry,” Volpe said.

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“We already have tariff targets included in CUSMA. If we export more than 2.6 million vehicles to the U.S., which we’re nowhere near doing, tariffs kick in.

“That’s why I feel his focus will be initially more on Mexico and China. The good thing is this guy can only be here for four more years, not the eight we were facing in 2016.”

Volpe said it’s impossible to be certain of what Trump might do, but there is much lower hanging fruit for him to lunge for in the Canada-U.S. relationship.

“I think the Trump administration’s focus will be more about things like supply management in the dairy sector and the dispute resolution mechanism in CUSMA,” Volpe said.

“The Americans weren’t happy with that mechanism and Canada and Mexico won a decision on parts already using it. I expect it’ll be one of the first things they go after.”

Fiorani said the auto sector landscape in Trump’s first term also didn’t include China as such a dominant player in the industry. With the shift towards EVs, the Chinese are the global leaders in production of electric vehicles, the supply chain and the supply of critical minerals.

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With the U.S. trying to play catch-up, Fiorani said the Inflation Reduction Act remains a critical piece of support that needs to stay largely in place for the benefit of U.S. automakers.

He expects some tinkering with the act on rebates, mandate timelines for EV sales and the easing of emission requirements that will slow the transition to electric vehicles, but notes Trump will get lots of pressure from U.S. automakers and governors of automotive states opposed to gutting the bill.

There would also be ripple effects across the border on Canadian-based battery manufacturers, who could also see the removal of government supports put in place to match the IRA Act.

“Much of the industry in North America has invested in an electric future,” Fiorani said.

“If the IRA is repealed, you have the potential for a lot of real estate and infrastructure that has consumed billions of dollars to sit idle for extended periods of time.

“Demand for EVs continues to grow. Disincentivizing the Detroit 3 will just make them less competitive globally.”

Canada can’t afford to get out of step with the U.S.

Fiorani notes the political quagmire gets even deeper for Trump if he scraps the IRA with those investments in battery plants, EV suppliers and OEM electric production facilities being virtually all in Republican states.

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“Ontario’s plants are well positioned for the slower transition to EVs,” said Fiorani, who expects internal-combustion products to remain important into the 2040s.

“Stellantis’s products can be gas or full electric. Ford in Oakville will make gas-powered trucks and Windsor’s engine plants are supplying the company’s profitable truck line-up.

“The idea these plants will be secure for an extended period are well-founded.”

Fiorani added if Trump changes emission standards and EV sales mandate timelines, Canada will almost certainly have to follow suit.

“Canada can’t afford to get out of step with the U.S. market,” Fiorani said. “It would be just too costly for consumers.”

Where the Canadian automotive industry may be most vulnerable to Trump’s moves, said Volpe, are suppliers with operations in Mexico. There are more than 120 Canadian-owned parts plants employing over 50,000 people in Mexico.

Among them are several Windsor-based firms, such as Windsor Machine Group, Integrity Tool and Mold, A.V. Gauge, AP Plasman, Colonial Tool, Narmco Group, Omega Tool, Windsor Mold and Valiant.

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“His focus on Mexico may result in them getting tangled up in tougher terms for Mexico,” Volpe said.

“Mexico was a critical growth area for Canadian suppliers. I’m wary they’ll take an unsophisticated approach to Mexico.”

Trillium Network of Advanced Manufacturing managing director Brendan Sweeney said the only certainty in the Canadian automotive sector is the needless shifting of energy to fending off trade wars rather than building on the nearly $50 billion in new auto investment Canada has secured in the past three years.

“We had certainty around trade and policy,” Sweeney said.

“We’re likely to see the start of a problematic environment in the U.S. allowing for the diverting of energy by industry and government to make the industry better in Canada by securing more investment.

“This industry doesn’t like uncertainty, so now the concern is we’ll see contraction.”

Dwaddell@postmedia.com

Twitter.com/winstarwaddell

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