WINDSOR, ONT. — A 25-per-cent import tariff on Canadian-made vehicles bound for the United States “would destroy the automotive sector in Canada and gut the auto retail economy in every community large and small,” the group representing the country’s dealers warns.
In a tweet on Aug. 10 that appeared to reference NAFTA's renegotiation, U.S. President Donald Trump said the "deal with Mexico is coming along nicely" and that "Canada must wait."
Trump then sent a warning to Ottawa: "Their Tariffs and Trade Barriers are far too high. Will tax cars if we can't make a deal!"
“Not only would tens of thousands of jobs be wiped out, but we would paralyze consumer purchasing power and consumer demand,” John White, president and chief executive officer of the Canadian Automotive Dealers’ Association (CADA), told Automotive News Canada even before Trump’s latest threat.
Vehicle sales in Canada could drop to 1.4 million from last year’s two million, which would return the industry to the dark days of the 2008-’09 recession, White said.
At that time, direct employment across the industry dropped to between 125,000 and 130,000. It has since climbed back above 150,000.
According to CADA economist Michael Hatch, two-way automotive trade between Canada and the United States amounts to $150 billion a year, accounting for 20 per cent of the entire bilateral trade.
As many as 160,000 manufacturing jobs in Canada, the vast majority in southern Ontario, would be at risk if a full-blown trade war comes to fruition, said Hatch.
“And the indirect effects on spinoff jobs would be enormous and nothing less than catastrophic,” he said. “While this is still hypothetical, our entire economy could be plunged into a recession if the threats become reality.”
Opponents of the tariffs said job losses on both sides of the border, prompted by falling sales, would reduce automotive production and drive up prices in an already-competitive industry with tight profit margins at the lower end of the price spectrum.
The U.S. Department of Commerce announced in June that it would begin an investigation under Section 232 of the U.S. Trade Expansion Act of 1962 about whether imports of automobiles, “threaten to impact the national security” of the United States. Trump has threatened Canada with a 25-per-cent duty on imported vehicles in a bid to win more favourable trade deals.
“Nobody really knows where this is going to go but so far whatever President Trump has said he’ll do, he’s done and that’s what concerns us,” said White.
White said CADA has taken the position that while it recognizes the need to be tough on trade, the federal government “must consider the larger picture of a potential trade war with the United States, especially one aimed at the automotive sector.”
A “tit-for-tat approach could be very devastating to the Canadian economy and we’re recommending that the government doesn’t go down that road,” he said.
While Canada’s retaliatory tariff regime has excluded the automotive sector for the time being, it still has the potential to hit Canadian consumers in the pocketbook with higher prices for such products as whisky, ketchup, condiments, boats and small household appliances.
“The problem with a fullblown trade war is that you end up with the gun pointed at yourself,” said Hatch. “But the federal government has to be seen to be doing something and there really is no better way of dealing with a uniquely unpredictable president than what they are doing.
“At the front end, you get a shot of political adrenalin but at the back end, you could end up hurting the Canadian consumer even more,” added Hatch.
CADA is countering the tariff threat with “direct engagement” with the Prime Minister’s Office as well as key cabinet ministers and the Canadian Automotive Partnership Council.
The association also is working with the U.S.-based National Automobile Dealers Association on a joint strategy, said Hatch.
CADA is in regular contact with its counterparts in the U.S. and while no formal strategy has been put in place, both groups agree they need to be on the same page as the potentially devastating trade war unfolds, he said.