Shares of major Canadian auto parts companies plunged on Monday as the industry warned that the threat of fresh U.S. tariffs on the sector could throw the North American auto industry into disarray after the collapse of a prospective trade deal on Friday.
Shares of Martinrea International Inc. MRE-T were among the day’s worst performers on the Toronto Stock Exchange, slumping 9.7 per cent to end at $10.11. Linamar Corp. LNR-T fell more than 8 per cent to $99.62, and Magna International Inc. MG-T shares shed more than 6.5 per cent to close at $93.85.
Martinrea, Linamar and Magna are Ontario’s three largest publicly traded auto-parts suppliers, and have manufacturing facilities across North America and abroad.
While Canada and the U.S. had widely been expected to reach a trade deal last week, sources told The Globe and Mail that the agreement collapsed shortly before a midnight deadline, after Canada objected to a range of U.S. demands, including some to do with exports of Canadian trucks. Ontario Premier Doug Ford and industry figures also pushed Prime Minister Mark Carney to get a better deal on steel and autos, The Globe reported.
The Globe is not naming the sources as they were not authorized to disclose information about the closed-door talks.
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U.S. President Donald Trump said on Monday that he will raise tariffs on Canadian auto imports to 50 per cent and start tariffing auto parts on Jan. 1, 2027. Those tariffs would be in addition to 50-per-cent tariffs on $28-billion worth of Canadian goods that came into effect on Saturday, as well as pre-existing levies on sectors including autos, steel, aluminum and forestry.
In a post on X, Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said that the new tariffs had the potential to cause huge disruptions, given the close links between the Canadian and American auto industries.
“Playing a game of chicken with a mirror is a fool’s errand. Only China auto wins,” he wrote.
The slump in Canadian auto parts shares was echoed across the border as Ford Motor Co. F-N and Stellantis NV STLA-N shares fell more than 3 per cent. General Motors Co. GM-N slipped 1 per cent.
Canada supplies about 13 per cent of total U.S. auto and parts imports, and roughly US$45-billion of U.S. imports of Canadian autos and parts could be affected by the threatened tariffs, Olu Sonola, head of U.S. economics at Fitch Ratings, said in an e-mailed statement.
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A 50-per-cent levy on autos on top of the tariffs that came into effect on Saturday would lift the effective U.S. tariff rate on Canadian goods to 6.5 per cent, more than double the 3.1-per-cent rate in place before the weekend, he added.
About 20 per cent to 25 per cent of Magna’s parts exposure could be subject to a 50-per-cent tariff “if the threat is carried out,” Tom Narayan, RBC Capital Markets lead equity analyst, global autos, said in a note.
Existing tariffs have already weighed on the Canadian auto parts sector. In a presentation to investors in July, industrial manufacturer Exco Technologies Ltd. XTC-T partly attributed weaker financial results to the negative impact of “U.S. tariff related disruptions.”
Exco shares slipped more than 3 per cent on Monday to close at $8.36.
“Tariffs are placing significant pressure on the integrated North American auto industry,” Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association, said in an e-mailed statement. “We urge negotiators to get back to the table and reach a deal that strengthens competitiveness, protects jobs and investment, and accelerates the review of CUSMA.”
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Some analysts said they are holding out hope that the U.S. could still walk back some of its tariff threats. Mr. Narayan said he viewed Monday’s announcement “as a negotiating tactic rather than imminent policy.”
Mr. Carney has also indicated that he is prepared to help Canadian businesses withstand a trade war, with a tariff-relief plan for businesses hurt by the latest round of U.S. levies expected this week.
“The failure of the latest Canada-U.S. trade talks is clearly disappointing, but we take some comfort from the fact that Canadian retaliation is not expected before early September,” National Bank economists Stéfane Marion and Matthieu Arseneau said in a note.
“That leaves a window for the latest U.S. tariffs to be reduced or lifted before Ottawa responds, to the benefit of North American supply chains.”
But Mr. Sonola said that “the uncertainty alone” could put a strain on North American auto supply chains.
“If implemented, the tariffs could force a significant and economically disruptive restructuring of Canada’s auto industry, with lasting consequences for its manufacturing base and broader economy.”
With reports from Mark Rendell
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