Trump’s signs executive order imposing 25% tariffs on aluminum, steel
President Donald Trump signed an executive order imposing 25% tariffs on all steel and aluminum imports in an ongoing trade war with key partners.
Tariff threats have raised concerns about the impact on the closely connected U.S.-Canada trade relationship.Michigan Gov. Gretchen Whitmer says Detroit-Windsor is the busiest active border crossing in North America.Auto parts may cross the U.S.-Canada border multiple times before final vehicle assembly.
President Donald Trump’s tariff threat is on again.
This time on steel and aluminum imports, targeted to begin on March 12, according to announcements by the White House on Monday.
For officials in Canada, one of America’s closest allies and trading partners, the frustration is obvious.
“It’s like every day it’s whack-a-mole,” said Matthew Holmes, the executive vice president and chief of public policy at the Canadian Chamber of Commerce. “The goalposts keep moving, and one day it’s for this reason and it’s applying to the whole economy and the next day it’s for a different reason and it’s just one sector.”
It was less than two weeks ago that the administration paused a threat for 30 days to hit Canada and Mexico with 25% tariffs on products across the two economies after announcements of agreements to bolster border security, with the administration settling instead on lesser tariffs on products from China. Whether a similar last-minute reprieve for either Canada or Mexico will occur in the case of tariffs on steel and aluminum is impossible to know at this point.
Connected pieces of an auto ecosystem
But the stress and even anger felt in Canada, evidenced by a push to buy Canadian-made products and by reports of booing of the U.S. national anthem at sporting events there, highlight a key fact: The United States and Canada have economies that are closely intertwined, and any sustained tariffs would mean pain on both sides. Ford CEO Jim Farley notably warned this week, as reported by the Free Press, that 25% tariffs on products from Canada and Mexico would “blow a hole in the U.S. industry that we’ve never seen.”
Tariffs, after all, are effectively a tax and tend to lead to retaliation. They are likely to raise costs to consumers and would complicate or possibly sever supply chains.
Canada isn’t just a country next door, it’s also the top export destination for 34 U.S. states, including Michigan, according to the Canadian Chamber. Canada accounted for 13.9% of total U.S. trade — more than $62 billion — in December alone, according to the U.S. Census Bureau, putting it just behind Mexico at 14.2% and $63.8 billion, respectively.
And Detroit and Windsor, Ontario, aren’t just on opposite sides of the border, they are connected pieces of an auto ecosystem.
In comments at this year’s Detroit Auto Show, Gov. Gretchen Whitmer pointed to Detroit-Windsor as the “busiest active border crossing in North America, driving more than a quarter of the $700 billion of annual trade between our countries.”
The governor said she isn’t opposed to tariffs outright, but they shouldn’t be used to punish the country’s closest trading partners.
“Doing so hurts all of us, damaging supply chains, slowing production lines, and cutting jobs on both sides of the border,” she said, according to a copy of her remarks. “Every time a Michigan auto part crosses over the border and gets taxed, those costs will be passed on to you at the dealership. Sometimes, it happens a couple times throughout production. That means you’ll pay more to buy a Silverado, fix the engine in your Mustang, or replace the fender on your Jeep Grand Cherokee.”
Auto parts, as the governor noted, can cross the border multiple times (some estimates put it as high as eight) before ending up in a finished vehicle.
Components might come from one country to be made in an engine in another before heading somewhere else for final assembly. Automakers, including Ford, General Motors, Jeep- and Ram-parent Stellantis, Toyota and Honda, for instance, have significant operations on both sides of the border, as do their suppliers.
“Even the seats themselves are an assembly of eight other pieces and materials,” according to Holmes, the Canadian Chamber executive vice president. “Of those eight materials, maybe four are coming from the U.S. and the other four are coming from overseas or Canada and they’re being assembled on the Canadian side and being sent over to Detroit for manufacturing of the final vehicle.”
The relationship is like a “dynamic living organism of all these different players, and they’re all working on just-in-time delivery at their own talent base and their own locale,” he said.
How long-lasting tariffs would change auto production
Although most of us are familiar with the former North American Free Trade Agreement and the current United States-Mexico-Canada Agreement, which was negotiated by the first Trump administration, the 1965 Canada-United States Automotive Products Agreement, known as the Auto Pact, set the stage for the later trade deals that included Mexico.
Sam Abuelsamid, vice president of market research for Telemetry Insights, said it changed the industry dynamics in the U.S. and Canada as it cut tariffs.
“It allowed manufacturers to realign their production so that instead of Ford building seven or eight different models in Oakville, they would build one and set it up as a conventional assembly plant where it was optimized to build one maybe two models on the assembly line there and so they got a lot more scale,” he said, referencing Ford’s Oakville Assembly Plant.
If tariffs are fully implemented on U.S. and Canada trade, Abuelsamid said he envisions a return to the pre-Auto Pact days that would lead to less importing because it wouldn’t be economically viable, and plants in Canada and Mexico, for instance, producing smaller volumes of various models.
“Either way, the costs rise significantly,” he said, noting the likelihood of higher average vehicle transaction prices, which are already too high for many consumers, and lower production leading to layoffs.
A key point in the president’s orders on the steel and aluminum tariffs and the paused tariffs is that they were written to exclude a provision called the duty drawback, which effectively prevents parts crossing the border multiple times from being subject to tariffs each time, according to Gary Hufbauer, nonresident senior fellow at the Peterson Institute for International Economics.
He said eliminating the drawback would be a big deal for the auto industry.
“That really kills the supply chain back and forth,” he said.
In addition to auto manufacturing, “the big things that Canada provides tend to be industrial inputs,” Hufbauer said, pointing to items like lumber for construction, uranium and a range of chemicals. There’s also oil.
“Canada is the U.S.’s largest oil supplier,” he said, noting that “the U.S. generally has balanced trade in oil, but we import a lot because of different grades in the petroleum business and a lot of refineries are tuned to Canadian grades.”
‘A gut punch to everyday people’
Many greenhouses are also located in Canada, supplying items like tomatoes to U.S. shoppers.
But Canadians also purchase lots of items from this side of the border, and the country’s planned “first phase” of its response to the initially announced but paused Trump tariffs highlight how it intended to hit back and might do so in the future. That list included 25% tariffs on “products such as orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper,” according to a news release.
Holmes, of the Canadian Chamber, described the threat of tariffs from such a close ally as disconcerting, and the beneficiaries of those tariffs, he said, would be countries like China and Russia.
“I won’t pretend that this hasn’t been felt at a personal level by many everyday Canadians,” he said, noting that that includes those who don’t pay attention to the news. “(It’s) surprising to see how much of a gut punch this feels like to everyday people.”
David Soberman, a professor of marketing at the Rotman School of Management at the University of Toronto, said the topic of tariffs in Canada has been widely discussed on the street and in the news media this year.
“It’s the only topic here,” he said.
Soberman said he doubts that tariffs, if they are levied, would be implemented long-term, noting that he doesn’t believe any country would impose policies that make no sense. If implemented, tariffs would have a negative impact for both sides, he said, even though it’s a more existential issue for Canada.
“Canada is going to have retaliatory tariffs because Canadians will be upset about it, and they are going to demand that of their politicians,” he said. “Canadians will have to pay more, but that’s when you get into a trade war. Typically, everybody loses. That’s the problem.”
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Publish date : 2025-02-12 23:01:00
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