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DETROIT — Starting April 1, 2025, Canada has implemented a 25% tariff on vehicles and a range of parts sourced from the United States. This move contrasts with the automotive tariffs recently introduced by former President Donald Trump, bringing a new dynamic to the North American automotive trade landscape.
Canadian authorities have notably excluded specific auto parts from these tariffs, reflecting the terms of the United States-Mexico-Canada Agreement (USMCA). They have established a remission process to provide potential relief for companies affected by the new duties, which was highlighted by Canadian Prime Minister Mark Carney during a press briefing.
“Our response is measured and specifically targeted,” Carney stated, emphasizing the government’s strategic approach to countermeasures in light of U.S. tariff policies.
Canada’s tariffs apply to imported vehicles from the U.S. that do not comply with the USMCA regulations, also incorporating provisions for any non-Canadian or non-Mexican components within USMCA-compliant vehicles. This means components from other countries may incur tariffs even if the vehicle itself meets trade agreement standards.
In contrast, Trump’s tariffs impact any vehicle not assembled in the U.S., which comprised nearly half of the vehicles sold in the U.S. market last year. Additional tariffs on various auto parts, such as engines and transmissions, are expected to roll out by early May.
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association in Canada, underscored the importance of preserving the individual automotive parts from tariffs, warning that broader tariffs could jeopardize the North American auto industry’s stability. He expressed the need for precise targeting of the tariffs to avoid unintended harm to Canadian-Mexican supply chains.
Unlike the U.S., which has not exempted Mexican content from its tariffs, Canada has chosen to exempt Mexico due to compliance with the USMCA trade regulations.
Automakers such as General Motors, Ford, and Stellantis maintain that their North American vehicles adhere to USMCA guidelines, though the level of compliance varies significantly among them.
With a significantly smaller market, Canada sold around 2 million light-duty vehicles last year compared to the U.S.’s approximately 16 million. The trade dynamics between the two countries resulted in an $8.33 billion trade balance, with exports of CA$43.82 billion against imports of CA$35.49 billion, according to DesRosiers Automotive Consultants.
Potential Remissions
There may be a chance for automakers to receive relief from the Canadian tariffs. Officials indicated the forthcoming implementation of a remission framework to encourage local production and safeguard jobs within Canada.
Details regarding this framework are expected to be disclosed soon. Canadian Minister of Industry Anita Anand noted that the objective is to ensure the viability of automakers in Canada, reinforcing the country’s commitment to maintaining its automotive production capabilities.
While automakers have advocated for a reevaluation of the U.S. tariffs, Trump has signaled that there will not be any exemptions, despite continuous efforts from industry leaders lobbying for USMCA-compliant vehicle and parts carveouts.
In Canada, businesses like Ford, GM, Stellantis, Toyota, and Honda collectively produced around 1.3 million light-duty vehicles last year, predominantly for the U.S. market, as reported by the Trillium Network for Advanced Manufacturing.
Last week, Prime Minister Carney estimated that Canada’s tariffs might generate CA$8 billion (approximately $5.6 billion), which will be directed towards supporting workers and businesses negatively impacted by U.S. tariffs. In 2024, total vehicle imports from the U.S. reached CA$35.6 billion, as per data from the Department of Finance Canada.
Prime Minister’s Stance
Canadian Prime Minister Mark Carney has not held back in expressing his opposition to the U.S. tariffs, labeling them as “unjustified, unwarranted, and misguided.” He suggested that without a cooperative and comprehensive approach, relations between the two neighboring countries are likely to suffer.
“Our long-standing relationship has entered a new phase, marked by these tariffs,” Carney commented, stressing the need for a robust response to the protective measures imposed by the U.S.
Canada is also pursuing legal avenues to contest these tariffs, having filed a complaint with the World Trade Organization citing the illegality of the 25% tariffs on imports from Canada into the United States.
The Canadian automotive sector, having rebounded from a decline exacerbated by the COVID-19 pandemic, saw light-duty vehicle production reach 1.54 million units last year, a significant improvement from the 1.1 million produced in 2021, though still lower than its peak production of 2.9 million in 2000, according to data from the Global Automakers of Canada.
François-Philippe Champagne, Canada’s Minister of Finance, reaffirmed the government’s dedication to addressing these tariffs, stating, “Canada will vigorously defend its interests and work to remove these unwarranted tariffs for the benefit of our workers and businesses.”
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