June 12, 2018
U.S. President Donald Trump’s threat to impose 25 per cent tariffs on auto imports from Canada would devastate the integrated supply chain that has been built up over decades and also cause job losses on both sides of the border, industry experts warn.
“It’s definitely going to impact the whole supply chain of automobiles in Canada and in the U.S.,” Laurie Tannous, special adviser for the Cross-Border Institute at the University of Windsor.
The North American auto sector is so highly integrated that parts and components can cross Canada and Mexico’s borders as many as eight times before being installed in a final assembly plant. Some experts say the tariff would be imposed on completed cars while others say it would be charged each time a part crosses into the U.S.
Shifting tool lines to the United States would be so complicated it could take many months if it can be done at all, Tannous said in an interview with Canadian Press.
The U.S. initiated an investigation to determine if automobile imports threaten to impair national security. Imports of passenger vehicles have grown to 48 per cent from 32 per cent of cars sold two decades ago while employment in auto production has declined 22 per cent, said Commerce Secretary Wilbur Ross.
Trump’s strategy appears aimed at returning the auto supply chain back to the U.S. While Canada and Mexico currently pay no tariffs, manufacturers in Japan and the Europe Union pay 2.5 per cent but charge American products 10 per cent.
“No wonder Germany sells us three cars for every one we export to Germany,” Peter Navarro, assistant to the president for trade and manufacturing policy, wrote in an op-ed piece in the New York Times. BMW X-series SUVs assembled in the United States contain only 25 to 35 per cent U.S. content while the high-value engines and transmissions come from Germany and Austria, he noted.
Navarro told Canadian Press Canada has dumped lumber into the U.S. and erected high barriers to harm wheat, barley, beer, spirits and dairy at a disadvantage.
“It’s time for our major trading partners — from strategic competitors like China to key members of the Group of 7 — to realize that the era of American complacency in the international marketplace is over.”
The implications of a high auto tariff would be felt by everyone working in the auto sector and beyond, said Jerry Dias, president of Unifor, which represents Canadian auto workers. “Sixty five per cent of all parts that go into a Canadian assembled vehicle comes from the United States, so there’s no way they can get out of this thing unscathed,” he said in an interview with Canadian Press.
Canada’s auto sector, which is the country’s leading export, employs 120,000 workers — 40,000 in assembly and 80,000 in auto parts and delivers $80 billion in economic activity. Dias said auto industry bosses won’t sit idly by if Trump hurts their bottom lines by choking off the supply of components before American ones are built.
“You’ll end up with bankruptcies before that happens,” he said in an interview. “Besides, the industry is operating at capacity so there’s no room in assembly plants to add models.”
While the impact would be devastating, it’s not clear how many Canadians would lose their jobs, Dias said. The proposed tariffs would cause between 157,000 and 195,000 American workers to lose their jobs over at least one to three years, according to two U.S. reports.
The impact would increase to 624,000 if auto producers like Canada retaliate with tariffs of their own, says a report from the Peterson Institute for International Economics. The U.S. Chamber of Commerce said 760,000 jobs would be lost from tariffs on aluminum, steel and autos.
“And if the administration carries out its threat to withdraw from NAFTA, an additional 1.8 million U.S. jobs could be lost in the first year alone,” it stated in a news release.
Some automakers may shift production to the U.S. to avoid tariffs, but the relocation decisions would have to factor in the costs of broken supply chains, investment uncertainties and less demand for products due to higher prices, said the report. Prices would rise because the current North American supply chain provides the lowest costs, said Sherman Robinson, one of the study’s authors.
“There’s a reason those value chains are scattered around North America. They’re efficient and cheap,” he told Canadian Press from Washington. “Right now it is competitive internationally because of NAFTA. It would cease to be competitive once you bring all those value chains inside, especially if you put tariffs on aluminum and steel which will raise the cost even more.”
Tariffs would add about US$6,400 to the price of an imported US$30,000 car, said a report from Trade Partnership Worldwide. Price increases would be more than US$8,500 per vehicle unless cooler heads prevail, predicts Tannous.
“If we have a couple of weeks of a cooling-off period and maybe get back to the table on NAFTA and see if we can’t resolve that perhaps all of this will go by the wayside.”