With Trump’s latest tariff threat looming, Canada’s auto industry must determine how much more it can absorb

As trade talks between Canada and the United States approach Wednesday’s deadline, the Canadian auto industry finds itself making a grim calculation: What level of tariff can it absorb without being forced to idle more auto plants?

Negotiators are seeking a trade agreement in Washington before President Donald Trump imposes 50-per-cent tariffs on a wide range of Canadian goods. The Canadian side wants the U.S. to reduce tariffs imposed last year on autos, metals and lumber, while the U.S. seeks concessions on dairy, alcohol and procurement as well as an end to Canada’s retaliatory tariffs on U.S. autos.

The Globe and Mail has reported that the U.S. has offered to cut the tariff on Canadian cars to 15 per cent from 25 per cent, excluding the U.S. content. The U.S. content of Canadian-made cars varies, but is generally about 50 per cent. Canada has countered with a demand that all North American content in cars be tariff-free.

Greig Mordue, an associate professor of engineering at McMaster University and a former general manager at Toyota Canada, said 15-per-cent tariffs on non-U.S. content are unsustainable, but Canadian negotiators could be faced with accepting them in hopes of winning reductions beginning in 2029, when a new U.S. administration could be in power.

At those rates, the effective tariff rate would be about 7 or 8 per cent, based on the value of U.S. parts in Canadian-made cars. This is equal to the labour costs of building a car, he said, making it economically unfeasible.

“Over the longer term, the assembly plants will suffer and eventually disappear,” he said.

Five things you need to know about the Canada-U.S. trade talks

Stephen Beatty, a consultant and former Toyota Canada executive, said the Canadian industry might be able to scrape by with low single-digit tariffs. But once the tariff rate gets into the high single-digit or low double-digit range, it will no longer be profitable to produce cars in Canada, and foreign-headquartered companies will start reassessing their manufacturing footprint.

“By the time you’re getting up to those levels, you’re basically wiping out the Canadian margin in the vehicle,” Mr. Beatty said in an interview.

He said Canada needs to be wary of agreeing to a deal that looks reasonable on the surface, but ends up undercutting the long-term economics of the industry.

And there is a second risk, he added: If Ottawa locks in a specific tariff rate on autos as part of an interim deal, it will undercut its bargaining position in future trilateral discussions with Washington and Mexico City about auto content rules in the United States-Mexico-Canada Agreement. The U.S. has already said in discussions with Mexico that it wants stricter North American content rules and a new rule that 50 per cent of a car must be made of U.S. auto parts to get preferential tariff treatment.

The Canadian auto industry, centred in Ontario, has struggled for several years amid high costs and a shift to low-cost locales in Mexico and the U.S. The tariffs imposed by Mr. Trump in 2025 have hastened the decline.

Stellantis NV shifted planned Jeep production to the U.S. from its plant in Brampton, Ont., which remains idle. Unifor says Stellantis is in talks to sell the factory, which closed in 2023 and has 2,200 workers on layoff.

General Motors Co. last year closed its electric-van plant in Ingersoll, Ont., and has reduced jobs and production at its Oshawa, Ont., pickup plant. Ford Motor Co., meanwhile, idled its Oakville, Ont., factory in 2024 and is slowly ramping up production of heavy-duty pickups after eliminating a plan to make electric cars there.

Canada’s two largest carmakers, Honda Motor Co. Ltd. and Toyota Motor Corp., have not made cuts to production or employment, but that is because they do not have excess capacity in the U.S., unlike the Detroit Three, Prof. Mordue said. However, Toyota has said it will expand in Texas, and Honda is reportedly considering building a new North American plant that analysts expect will be in the U.S.

Lana Payne, who represents 18,000 auto assembly workers as national president of Unifor, said the talks between the two countries must eliminate the 25-per-cent tariffs if Canada’s auto industry is to survive.

Lumber, auto tariffs remain sticking points as negotiations with U.S. enter final stretch

Ottawa should consider applying new leverage, she said, on top of a widespread halt on U.S. alcohol sales and countertariffs on U.S.-made cars. Canada is an important U.S. source of oil, potash and critical minerals, all of which could be subject to an export tax.

“We have things that the U.S. needs,” Ms. Payne said in an interview. “We have a trade deal that was designed to basically make sure that we could have tariff-free access because we’re building things together and because they have access to other things from Canada, whether that’s energy or potash or a whole bunch of other things that their economy depends on.”

Most Canadian provinces have taken U.S. alcohol off the shelves. And in retaliation for the U.S. auto tariffs, Canada has imposed a tariff-remission program on auto makers. The system applies 25-per-cent tariffs on the non-Canadian or Mexican content of imported cars unless the makers have a manufacturing footprint in Canada.

This combined tariff-remission system has frustrated both Detroit and Washington. The most punishing of Mr. Trump’s three executive orders imposing new tariffs starting on Aug. 19 is tied to Ottawa’s attempts to protect auto production in Canada.

If Canada wants to avoid the new tariffs, it may have to drop or weaken its remission system. But that is a major risk in itself, Mr. Beatty said.

Lumber, auto tariffs remain sticking points as negotiations with U.S. enter final stretch

“You have to take Trump at his word: He wants the Canadian industry to move lock, stock and barrel to the United States. And the only thing we really have by way of leverage is the Canadian market; at the end of the day, the U.S. only has one good export market, and it’s Canada. And that’s why duty remission was such a powerful tool in dealing with the Americans . . . it actually works.”

Jordan Brennan, managing director of thought leadership at Royal Bank of Canada, said it’s difficult to put an exact number on what tariff rate would allow auto companies to manufacture cars profitably in Canada, as it differs from company to company. But, averaged out over a decade across the business cycle, profit margins are generally in the high single digits.

“You can imagine a really low tariff rate with the 70-cent or 75-cent Canadian dollar means we could still be competitive in a North American context,” Mr. Brennan said in an interview.

A lot is at stake for the Canadian economy, if the auto industry can’t remain competitive and is slowly wound down, Mr. Brennan said.

“Is there enough demand, national, local demand to sustain a steel and aluminum industry and a plastics and a chemicals industry, if you don’t have the demand coming from auto?”