Trump tariff chaos could ‘blow a hole’ in U.S. auto sector — analysts

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Should U.S. President Donald Trump make good on this week’s threat to impose a 25 per cent tariff on imported vehicles beginning April 2, auto analysts forecast the North American industry will grind to a halt in as soon a week.

They warn there is no short-term ability to shift vehicle production in a highly integrated industry.

The North American industry would quickly see layoffs, plant closures, higher vehicle costs and less selection on both sides of the border, says Sam Fiorani, AutoForecast Solution’s vice-president of global vehicle forecasting.

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“The first thing that will happen is the small suppliers who can’t afford to ship their products across the border will halt production,” Fiorani told the Star. “OEMs (original equipment manufacturers) and larger suppliers will hold off a little longer.

“We could see production halt, as manufacturers run out of parts, in one to two weeks because of just-in-time delivery. The impact will be felt quickly on both sides of the border.”

Trump was unclear on whether any auto tariff on Canada and Mexico would also be stacked on top of the general 25 per cent tariff he’s threatened to impose March 4 on all imported goods from those two countries. That combined tariff could reach 50 per cent or higher.

Fiorani said it would take years and billions of dollars to rebuild supply chains and new production plants in the U.S., making quick, mass relocation unfeasible.

“The USMCA is designed as one machine,” said Fiorani, referring to the current free trade agreement between the U.S., Mexico and Canada.

“The U.S. can’t compete with the European Union and it definitely can’t compete with China on its own. It takes all three countries to take on Europe and China.”

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Fiorani noted that it was fear over the cratering of the North American industry and its inability to compete globally that led Ford CEO Jim Farley to strongly criticize Trump’s tariff policies last week.

Farley said the tariff policies were “creating a lot of cost and a lot of chaos” for automakers and, if kept in place, “a 25% tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we’ve never seen.”

Trillium Network for Advanced Manufacturing managing director Brendan Sweeney said a 25 per cent tariff on the auto industry would be devastating for all involved.

The impact, he told the Star, would be felt on a company-by-company and plant-by-plant basis.

“The U.S. industry being much bigger than in Canada, the effect on the U.S. will be substantially bigger,” Sweeney said. “It seems like shooting yourself in the foot just to make a point.”

Like Fiorani, Sweeney feels the heated rhetoric from Trump is all part of setting the table for new trade negotiations. He notes the president’s changing goals and deadlines are all designed to create chaos.

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“We’re still in chapter three of his book and negotiations don’t start till chapter eight,” Sweeney said.

The U.S. actually enjoyed a billion-dollar automotive trade surplus with Canada in 2024, he added.

According to federal trade data from Science, Innovation and Economic Development Canada, this nation had a $5.5-billion surplus in vehicle trade but ran a $6.5 billion deficit in the trade of automotive parts.

“We were subsidizing the U.S. in 2024,” Sweeney said. “In that sense, how can Canada be a problem?”

Fiorani added there is no rationale for targeting Canadian automotive production on the issue of tariffs either.

There are no tariffs between the U.S., Canada and Mexico if vehicles meet the 75 per cent domestic content threshold. Fiorani said all Canadian-produced vehicles meet that threshold as defined in the USMCA deal that was negotiated with, and signed by, Trump in his first term.

Fiorani said there is more of a tariff discrepancy between the U.S. and European and Asian automakers.

“The difference with Japan and South Korea is there are also other barriers to getting into those markets besides financial ones,” Fiorani said of the restrictions those countries place on imported vehicles.

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Trump’s goal of forcing the automotive industry to suddenly uproot from other countries and relocate vehicle production quickly to the U.S. is unrealistic, he added.

The industry has spent the last 100 years and billions of dollars building an integrated supply and production chain that allows it to offer the most choice at the most affordable cost to consumers, while maximizing profits for manufacturers, he said.

“It’s an industry that won’t and can’t move quickly to change directions. We’re likely to see some production move, but the Trump administration is limited to one term.

“Any investment today in a new plant will take three to four years to be ready, and things could change by then.

“They’re not investing for the short-term.”

Dwaddell@postmedia.com

Twitter.com/winstarwaddell

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