11 Jul 18

Trade war could make Canadian cars 25% more expensive

If Canada and the U.S. exchange punitive tariffs on each other’s automotive industries, the average price of a new car in Canada could go up by as much as CA$9,000 (€5,840), the country’s automobile dealer association CADA warns. 

U.S. President Donald Trump has proposed levying a 25% tariff on imported light-duty vehicles from Canada, Mexico and the European Union, as well as 10% tariff on automotive parts.

Price hike
According to the Canadian Automobile Dealer Association, a decision to impose tariffs could add between CA$5,000 (€3,244) and CA$9,000 to the price of a new vehicle. For context: in 2016, the average price of a new vehicle in Canada was just about CA$40,000 (€26,000) – and most of those came from the U.S.

In other words: the tariff would almost entirely be translated into a price hike for the consumer, who in a worst-case scenario would have to pay almost a quarter more for their new vehicle. That would be catastrophic for the Canadian automotive industry, and for the country’s economy as a whole, warns CADA. 

Potential impact
Canadian business tv network BNN Bloomberg has gathered data on the potential impact of the U.S. auto tariffs on the Canadian economy. Some key figures:

  • If the U.S. applies tariffs on all imported vehicles, Canada’s automotive industry could lose up to 400,000 units produced per annum. 
  • That figure could rise to 900,00 units if the tariffs apply only to vehicles imported from Canada. 
  • The Canadian dollar would fall by 15%.
  • Business investment in Canada would decline by 8.9%.
  • A recession would hit Canada – and the U.S. – by 2020. 

CADA represents 3,200 Canadian car and truck dealers employing in excess of 155,000 Canadians across the country. Up to 30,000 of those jobs would be immediately at risk in a worst-case scenario trade war between Ottawa and Washington DC – as well as up to 100,000 manufacturing jobs across Canada. Indirect job losses could drive the total even higher. The pain would be felt mostly in Ontario, the origin of 40% of Canada’s automotive exports. 

Mitigating measures
That’s why the organisation urges the government of Prime Minister Justin Trudeau (pictured) to resist the urge to retaliate against U.S. tariffs. However, in the likely case that such tit-for-tat tariffs are taken, CADA suggests a few measures that may mitigate the negative impact of a full-blown trade war. Such as: 

  • A sales tax exemption for new vehicles. This will at least partly compensate for the damage done by U.S. tariffs. 
  • A vehicle scrappage scheme, in order to encourage the retirement of older vehicles in favour of new ones. 
  • A comprehensive reform of both personal and corporate taxes, in order to strengthen Canada’s competitiveness.

Trump Administration officials are currently examining whether the import of vehicles and vehicle parts produced by those foreign economies constitute a ‘security threat’ to the U.S. If so, they could be subject to the aforementioned tariffs. A decision could come as early as August.

Authored by: Frank Jacobs