Trump's Auto Tariffs Would Slam Canada's Car Industry And Lead To Higher U.S. Prices

Donald Trump’s heightened attacks on Canadian Prime Minister Justin Trudeau are raising concerns that he might follow through on threats to impose auto tariffs, a move that would devastate the car industry in Canada and lead to higher U.S. prices. The Trump administration’s pledge to consider tariffs on all imported vehicles took on more urgency last weekend after Trump and his advisers accused Trudeau of “bad faith diplomacy” for his trade comments following a meeting of Group of Seven leaders in Quebec. Yet after White House trade adviser Peter Navarro said there’s a “special place in hell” for foreign leaders like Trudeau who engage in bad faith with Trump, Canada’s auto sector may be more at risk. Motor vehicles and parts were Canada’s biggest export after energy products, representing about 16 percent of the C$7.4 billion ($5.7 billion) in shipments over the first four months of this year.

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BMW and Honda and all the other foreign companies building vehicles in US will love to see tariffs on cars built in Canada by US companies...

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One note about tarrifs row:
Average tariffs, according to the WTO (https://www.wto.org/english/res_e/statis_e/statis_maps_e.htm …):
- US -2.4%
-EU - 3.0%
-Canada - 3.1%
-Mexico - 4.5%
-Germans pay 2.5% duty on car exports to the US, while the US pays 10% on car exports to the EU.
Obviously, is not balanced.

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The tariffs aren't for Canadian purchases of cars. They're for cars going to US from Canada. Would be bad news for automakers with manufacturing here.

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(edited)

Foreign (to USA) auto builders have chosen Canada as a site for their plants, called "transplants," for a plurality of reasons:  the finished product can be easily shipped to dealers (and final buyers) across the continent, and rapidly, reducing inventory dwell times;  lots and lots of the parts needed can be sourced locally, for short inventory dwell times and thus faster turnover, lowering costs; the Canadians have a government-paid health insurance scheme, whereas in the US the employer typically pays for private insurance premiums, adding some $2-3,000 per car to their build costs;  the Canadian Dollar has been trading at a discount to the US$, so labor costs are low; in provinces other than Ontario, power costs are very low; there is a generally well-educated and skilled work force and a reasonably stable judicial system. 

Plants set up in Mexico for very cheap labor, and to some extent immunity from adherence to environmental regulations.

These advantages have eroded over time, due principally to the aggressive posture of the Canadian Auto Workers, which in large measure has become a strident and militant entity; difficulties in dealing with tone-deaf Provincial Legislatures, in both Quebec and Ontario, the traditional heart of Canadian manufacturing; increased labor costs eroding what was a considerable cost advantage; and massive increases in power costs.  The result was predictable:  plants closed, including the massive GM plant in Ste.-Therese, Que., now torn down for a shopping center, and Ford and Chrysler plants in Ontario. 

What has largely remained are the transplants from Asia, who build cars from parts largely produced in Japan and Korea, thus avoiding the long inventory dwell times of shipping across the Pacific. It is those plants, a lot of which output is headed for the USA, that are most at risk. 

If the Canadian builders/assemblers get hit with a hefty duty, I predict every single one of the transplants will close.  The sunk costs of the plant are classic "stranded assets," for which there will be no Buyers, so the owners will strip out the machinery and abandon the plant, selling it for scrap value.  Once gone, they will never, ever come back.  And that is the real risk Trudeau faces when he makes his huff-and-puff statements, which ironically are made specifically for domestic consumption, but Trump being such a thin-skinned egotist does not take it that way.  I see big trouble ahead.  Trump is quite capable of whacking the auto industry just out of spite. He is a remarkably immature person.

 

Edited by Jan van Eck
punctuation

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