With a growing number of new trade deals being sealed, the focus now is on how the U.S.-Canada agreement will play out, which could shape the auto industry.
The details: A new U.S.-Canada trade deal has been in flux—fueling some industry concerns following the August 1 enactment of a new 25% to 35% tax on certain goods that impact some non-United States-Mexico-Canada-Agreement (USMCA) compliant auto materials and components from Canada and the U.S.
For now, automobiles and parts will still face up to 25% sectorial tariffs depending on the vehicle’s content.
A significant amount of Canadian vehicle production consists of 50% to 60% percent U.S. content, putting the effective tariff at about 10% to 12.5%, according to a Wards Auto report.
American automotive and parts manufacturers selling into Canada face a similar dynamic—with some U.S. companies now required to pay a 25% retaliatory tariff imposed by Canada.
The public sticking point in reaching a new, more comprehensive trade deal is based around claims from President Trump that Canada has not done enough to address the flow of illicit drugs across its border into the U.S., which Canada vehemently denies.
What they’re saying: “The fact that he is negotiating separately with Mexico is cause for concern, given the existing USMCA agreement still in place. Unless Canada makes some big moves on the issues Trump cares about, like border enforcement or trade barriers, it’s hard to see him walking it back soon. That said, this administration has been anything but consistent,” Erin Keating, Executive Analyst for Cox Automotive told CDG News.
Why it matters: As Keating puts it, cars built in North America often cross the border multiple times before they’re finished. When trade flows get disrupted, it’s not just about tariffs, it’s about supply chain headaches, higher costs, and slower production, the Cox analyst told CDG.
Between the lines: Keating—who attributes the stall in a U.S.-Canada deal to a mix of economic and political friction—said two things stand out to her regarding negotiations and where a trade agreement might land with Canada.
15% tariffs inclusive of automotive are generally where other major trading partners have landed.
The deals often have a tone of bilateral wins, but in actuality, they provide a picture of the U.S. strength in holding the upper hand.
Bottom line: The U.S.-Canada trade agreement remains in limbo, with escalating tariffs (10%-25%) already impacting cross-border auto materials, increasing costs and complicating supply chains—threatening higher expenses, and potential production slowdowns despite USMCA still being in place if a mutually beneficial deal isn’t reached soon.
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