Trump Proposes 50% Tariff on Canadian Cars, Threatening Toyota and Honda

U.S. President Donald Trump has proposed imposing tariffs of up to 50 percent on cars imported from Canada. Although the primary target of the U.S. president’s decision is the government of Ottawa, Japan’s two automotive giants, Toyota and Honda, could bear the direct consequences.

The two Japanese companies produce more than three-quarters of all vehicles manufactured in Canada. If the new tariff structure takes effect from January 1 next year, they could be forced to shut down some of their assembly plants in the country.

Serious Risk of Production Shutdowns

The impact of the tariffs on Japanese automakers will be particularly severe in the U.S. market. According to international analyst firm Barclays, nearly one-quarter of Honda’s total U.S. sales last year and 17 percent of Toyota’s sales came from vehicles produced at Canadian plants. If the existing 25 percent tariff is doubled to 50 percent, it could cause a major disruption to the Japanese companies’ businesses.

Japanese automakers are already facing intense competition from cheaper Chinese electric vehicles in markets across Southeast Asia, Europe and Latin America. If access to their largest market—the United States—becomes more difficult for Canadian-made vehicles, the situation could become even more complicated.

Market Restructuring and Major U.S. Investment

Canada’s automotive industry produces around 1.2 million vehicles annually and directly and indirectly supports more than 427,000 jobs. Toyota’s RAV4 and Honda’s CR-V, two popular SUV models among the best-selling vehicles in the U.S., are largely manufactured at plants in Canada.

Faced with Trump’s unpredictable trade policies, Toyota has been compelled to formulate a five-year, $10 billion investment plan to expand production directly in the United States. As part of the plan, the company is building a new plant in Texas at a cost of $3.6 billion.

Free Trade Agreement Faces Uncertainty

Meanwhile, Honda is struggling to revive its loss-making automotive business. Uncertainty also remains over the USMCA free trade agreement between the United States, Canada and Mexico. The company has indicated that it may suspend plans to build a new plant in North America if the agreement is not renewed.

If the new tariffs come into effect, the two companies could be forced to send vehicles manufactured in Canada to markets outside the United States. However, these vehicles are specifically designed for the U.S. market, making it extremely difficult to suddenly redirect them to other countries or rapidly increase production capacity at plants elsewhere.

As a result, despite the extreme uncertainty, the Japanese automakers are currently monitoring the situation while awaiting a final decision.

//DBTech/BMT/OR//