Canada has initiated a significant trade response against the United States by imposing a 25% tariff on certain automobiles and their parts. Recent tariffs slapped on by US President Donald Trump’s administration have begun to test the very interconnected automotive industries of both countries. This decision is a reflection of all of the continued damage caused by those tariffs. The new Canadian tariffs will target finished vehicles that breach the terms of the Canada-United States-Mexico Agreement (CUSMA). They would extend to all vehicle content not originating in Canada or Mexico.
Beginning next month, Canadian importers will face the imposition of a new tax. This new tax will be levied on cars that fail to satisfy the CUSMA requirements. This center creation would help protect the domestic market from foreign unfair trade practices. Canada’s coming out with their answer to Trump’s 25 percent import tax on cars coming into the US. In response, then Prime Minister Mark Carney promised swift and serious retaliation to Trump’s tariffs. He did not mince words about the fact that Canada won’t sit on the sidelines.
The tariffs also apply to any “non-Canadian and non-Mexican content” in vehicles that otherwise qualify under CUSMA. This provision specifically seeks to penalize any components or materials produced in countries outside of Canada and Mexico. By adding extra costs, it raises the stakes of making regional content meaningfully important that the whole auto manufacturing process.
Relations between the two countries have reached a boiling point. Yet Trump’s incendiary rhetoric concerning an eventual U.S. coup of Canada has outrageously stoked public sentiment in a country already simmering with resentment. Our Canadian counterparts consider every one of these examples disrespectful and damaging to the decades-long established bilateral relationship.
This last point is especially pertinent given how closely integrated the Canadian automotive sector is with its American counterpart. This is illustrated by a high level of parts trade. Together they are becoming increasingly difficult countries in which to imagine trade. At the same time, they are subjected to rapid-fire retaliatory measures by other countries, such as China, which rapidly responded to Canada’s announcement.
American importers are currently subject to a painful 25% blanket tax on all imports from Canada due to the deeply misguided automotive tariffs. While this tax would be applicable to nearly all goods, it specifically excludes those already covered under current trade agreements. Significantly lower rates have been retroactively imposed across the board on certain targeted goods, most notably energy products, potash, aluminum, and steel.
The larger ramifications of these tariffs serve as a timely reminder that the trade war between the US and its largest trading partners is far from over. To address what he considered harmful global trade imbalances, Trump’s administration unleashed a barrage of new taxes. Canada, among other nations, was made an explicit target in this campaign.