Linda Hasenfratz: You can’t unscramble the eggs on auto trade

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Every Canadian I meet is in a flurry about the impact of potential tariffs that change in scope and size with the wind. What do we do to cope? Be calm, be confident, focus on facts.

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The negotiating approach of the U.S. administration is to upset opponents. Don’t let that happen. We control how we feel, no one else.

Tariffs have been imposed, removed, imposed, removed, imposed with some qualifiers. Don’t panic every time a new announcement is made, it might even change that very day.

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Second, let’s take a minute to restore our confidence in our great country.

Canada is today in an enviable position, poised on the precipice of an era of exceptional growth and prosperity. Why do you think the U.S. is interested in acquiring us?

We have an abundance of critical minerals and fresh water, and an electricity grid that is more than 80 per cent green, meaning things we make here don’t carry a heavy carbon footprint.

We have a great education system and our student scores consistently track strongly in international comparisons, consistently ahead of the U.S.

We have freedom of speech and a society that values women and diversity in all its forms.

We are one of the few global centres to be considered a world leader in both manufacturing and technology, notably AI, which is powering our world-leading advanced manufacturing businesses, which make products the world can’t do without.

We are highly productive. What, you say? Canadian business productive? Yes. Canadian productivity stats reported to you do not reflect the productivity of Canadian business because they include workers who do not generate sales, such as government and not-for-profit workers. They reflect our overall demographics. If we exclude those workers from the calculation and just look at Canadian business you can see a strong and steady growth in productivity, up more than 50 per cent over the past 25 years. Canadian manufacturing productivity growth has outpaced that of the U.S. steadily over the past 15 years.

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It is up to us to unlock Canada’s prosperity potential. Governments must reduce regulatory burdens to accelerate time to market, reduce personal and business income taxes to make us more globally attractive to talent and investment, and reduce heavy government bureaucracy. Our politicians seem to understand these imperatives given both parties are currently campaigning on some version of this strategy.

And finally, we need to focus on the facts as we enter negotiations with the U.S. to come up with winning solutions.

Let’s look at the automotive industry as an example.

The U.S., with by far the largest auto sector on the continent, employs 50 per cent more workers in the automotive industry than the next largest employer, Mexico. That means if production declines, it hurts American workers more than any other country. Way more.

The U.S. produces 9.9 million vehicles a year, 66 per cent of North America’s total. The population of the U.S. is 67 per cent of all North America.

Mexico produces 4 million vehicles a year, 26 per cent of North America’s total. The population of Mexico is 25 per cent of all North America.

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Canada produces 1.2 million vehicles a year, 8 per cent of North America’s total. The population of Canada is 8 per cent of all North America.

Seems reasonable.

The automotive industry in North America is highly integrated. Parts often cross the border six or seven times in some form or another before pulling into your driveway as a new vehicle. We are all enormously reliant on each other. Mexican-built vehicles have 40 per cent U.S. content. If you shut down Mexican auto imports into the U.S., that is approximately US$72 billion of U.S. parts not being made and about 360,000 American workers out of work.

You can’t unscramble the eggs. The cost is enormous, the timeframes are lengthy and the payback is zero.

Shifting suppliers for a highly engineered part or sub-assembly cannot happen quickly. It takes 12 to 18 months and significant investment for the new supplier to tool up and do all the required testing and validation. Meantime, automakers are paying tariffs of 25 per cent. No way does that math work.

Shifting production saves nothing and brings no additional revenue. Where is the payback for business? Avoiding tariffs that could go away tomorrow? Or, sorry, was that yesterday?

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Let’s look at vehicle assembly as an example. The U.S. administration certainly appears to want to make all the vehicles in North America in the U.S.

Notwithstanding that Canadians and Mexicans buy vehicles, too, and might just want to have some production, let’s just explore this idea.

The cost to build a plant to make 250,000 vehicles is US$2.5 billion to US$5 billion and takes two to three years to get to production. For five million vehicles that would be US$75 billion. Three years from now, vehicles are rolling off the line in the U.S. Three years and 294 days from now, a new administration will be taking office in the U.S. No reduced cost, no additional revenue, no payback.

Instead, let’s focus on how we can instead build and sell more vehicles globally. North America buys 19.2 million cars and the global market is 89 million, meaning 80 per cent of the world’s automotive sales are outside of North America — let’s target that.

What if Mexico made the highest labour content parts of the car, Canada made the most energy intensive parts of the car (remember our 80 per cent clean energy grid), the U.S. made the rest of the parts, and we split up vehicle production fairly (maybe by population). Tap into world leading North American technology to drive amazing innovation into those cars. Then we might just have the most innovative, leading edge, lowest cost and greenest cars in the world.

In the end it is collaboration that drives prosperity, not divisiveness. When did you ever strengthen a chain by breaking it?

Let’s collaborate in North America and win together and then we will all be more prosperous.

In the meantime, Canada, let’s stay calm, let’s be confident, and above all let’s focus on facts.

Linda Hasenfratz is the executive chair of the board of Linamar Corp.

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