Elbows up, Canada! Trump has implemented cross-border duties, but there’s still lots our government – and new-car buyers – can do to work around them
That said, I am all in favour of using social media to attempt to sway public opinion, and I have certainly given up expecting most of what I see online to be real. I just hope companies and governments were using the last 30 days to think through their strategies and mitigation efforts instead of just dreaming up cute ways to defend the status quo. Unfortunately, I suspect it is tariff Groundhog Day all over again, and we are no further ahead than we were at the end of January.
Well, maybe a little ahead. Thirty days ago, the Liberal leadership election was still weeks in the future. The Trudeau government would have had time to consult with industry and prepare its second-phase response to U.S. tariffs prior to next week’s leadership vote, and, likely, subsequent general-election call.
However, in Canada, there is a general rule that constrains government action during an election period, called the Caretaker Convention. This rule does not preclude government action during an election, particularly in the face of extraordinary events, but it does require politicians and officials to act with restraint and specifically states that “…government activity following the dissolution of Parliament – in matters of policy, expenditure and appointments – should be restricted to matters that are:
- routine, or
- non-controversial, or
- urgent and in the public interest, or
- reversible by a new government without undue cost or disruption, or
- agreed to by opposition parties (in those cases where consultation is appropriate).”
Agreement from the opposition parties in today’s charged political environment may not be impossible, but it is unlikely. So, the government will have to tread carefully in this period, and its capacity to respond publicly to comments or initiatives coming from the White House during the election will be hampered. That said, we should have already been having an open dialogue about next steps, preparing Canadians for outcomes that may have to be implemented on short notice.
Let me get that ball rolling: we need counter-tariffs. And before anyone starts to hyperventilate, let me just say that putting a tariff in place is different from passing those tariff impacts along to the market.
I would propose that tariffs apply to all vehicles imported from the United States. However, companies that assemble vehicles — or manufacture major powertrain components — in Canada should be given a duty waiver (a remission of duty) on an equal value of vehicles imported from the United States. The result would be that companies manufacturing in Canada would be able to offset duties on their U.S. imports. This would offer an incentive to anchor production in Canada while ensuring that there would be no tariff impact on the largest volume of imports from the United States.
Limited in scope to U.S. imports, all other vehicles would be untouched, with many coming from countries with whom Canada maintains free-trade agreements. Imports of parts for use in manufacturing should also continue to be duty-free. Applying duties on inputs to manufacturing would make Canadian goods more expensive for Canadians and undermine the competitiveness of Canadian manufacturing, so should be avoided.
If the U.S. government suspends the application of de minimis to shipments from Canada (a step announced by the Trump administration, and subsequently withdrawn when packages started to back up at the border) Canada should halt its $150 de minimis exemption on courier imports of automotive service and repair parts and accessories.
As supply chains will have to be adjusted in response to tariff impacts, Canada should quickly update its assessment of our rail and ports infrastructure to accommodate east-west movement of vehicles and parts, as sourcing shifts to duty-free suppliers in Europe and Asia.
Special adjustment measures (e.g. employment-insurance top-ups) should be made available to workers in the auto industry and other directly impacted sectors.
For consumers, the impact of tariffs will take time to filter into the market. Part of this is a function of how many vehicles are currently in dealer inventory. Spring is peak selling season in Canada, so inventories typically swell in the first quarter. Coming at the beginning of March, tariffs have likely interrupted that build-up of inventory, but the timing and extent of cost impacts will come down to how quickly dealer inventory is turning, and where those vehicles are coming from.
While there is little public data on Canadian dealer inventories, Cox Automotive reported the average inventory across all brands in the U.S. market was 80 days of supply at the end of January. For specific brands, that could be as high as 153 days’ supply at Ram; with GMC and Chevy just above the industry average; and Toyota, Honda, Lexus, and Mazda with 36 to 59 days’ supply.
Using the U.S. numbers as a loose proxy for Canada, Ram and Ford seem better positioned to weather a short-term disruption at the border. But keep in mind that brands like Toyota and Honda may be able to divert additional Canadian production to local dealers and, along with Mazda, may be able to redirect Mexican-made vehicles to the Canadian market.
If you intend to purchase a vehicle later in the year and it is produced in an American plant, now might be a good time to buy. Any vehicles currently on dealer lots have not been impacted by tariffs, prices have not been adjusted to reflect the latest round of exchange-rate fluctuations, and there are fewer people in the market competing for those vehicles at this time of year.
For vehicles from other plants around the world, you will have to make a best guess. Will Canadian manufacturers offer made-in-Canada incentives to support local production? Will the euro and yen track with the Canadian dollar so that pricing of imports from Europe and Japan will remain stable? With gas prices predicted to rise, will this spur demand for hybrids, or will purchase incentives for certain electric vehicles be reinstated?
If you haven’t learned how to read a vehicle identification number (VIN), now might be a good time to pick up a new skill. VINs starting with a 1, 4, or 5 indicate a vehicle that was assembled in the United States, while a code 2 means it was built in Canada. By the way, getting in early might just save you some money on insurance, as that industry is reported to be seeking rate adjustments to cover tariff-driven vehicle and parts price increases.
A sudden 25% increase (or more, depending on any additional tariffs the U.S. may impose on steel, autos, or other products) could kill demand if it had a particular impact on popular products (e.g. U.S.-made pickup trucks or EVs). It is also likely that the leasing of vehicles impacted by tariffs will dry up as finance companies will not want to assume lease-end value risks.
We are coming up to an important election. It will not be easy for a new Liberal leader to take control of his or her party, ensure the government can continue to operate during an election campaign, and also ensure a smooth transition of government to a new party or get back to Ottawa and hit the ground running with a new mandate. Donald Trump will have an outsized impact on Canadian politics in the coming weeks and months, but he may just have found a way to get Canadians focused on trade and economic policy in a way that we have not seen since the 1988 free-trade election.