For the last 30 years, the US has been the largest market for new cars and trucks built in Mexico. Canada, meanwhile, got most of its cars from the US. Now, thanks to big market swings as automakers and customers look to avoid President Trump’s tariffs, that has changed. Starting in June, Canada became the biggest market for vehicles that were built in Mexico, while imports from the US collapsed. It’s potentially just the start of a huge change in the global auto industry, a shake-up that, as yet, nobody knows how it will end.
When Trump introduced tariffs on foreign-built vehicles brought into the US, a clear violation of the US-Mexico-Canada agreement that the President negotiated in his first term, Canada and Mexico responded with tariffs of their own. If the US is going to charge to bring in vehicles built in other countries, then other countries will return the favor.
That has led to some big changes. Subaru, for example, shifted production so that vehicles built for Canada were now coming from Japan instead of Indiana. Mazda stopped exporting the popular CX-50 altogether. And others started bringing cars up from Mexican production facilities, even if they had to find bonded carriers to bring them through the US.
In June, Bloomberg reports, the balance of trade flipped for the first time. $1.08 billion worth of vehicles (in Canadian currency) were imported from Mexico into Canada that month, while $950 million in vehicles were imported from the US. It’s the first time that’s happened in a month since the 1990s.
As a sign of how much the market has changed, Canada was importing around $2.5 billion worth of US-built vehicles every month before the tariffs came into effect. Canada is not a small market for US car plants, either. Last year, $23.2 billion USD in US-built cars were shipped to Canada. That’s more than the next six highest US-export customers combined. If trends continue this year, that amount could be halved or more, making a significant impact on US automakers, their workers and suppliers.
Prior to this shift, the US ran an auto trade surplus with Canada. The US shipped far more vehicles north (more accurately, south at the Detroit-Windsor crossing) than Canada shipped back. Some of this increase in cars from Mexico includes more affordable vehicles like the Nissan Versa that are sold in Canada but not in the US.
With retaliatory tariffs and shaky trade talks, there is a great deal of indecision in the supply chain. That indecision could soon lead to higher prices, because automakers soon need to decide to build more cars and parts at higher costs in the US, or simply pass on tariff prices. While some trade deals have been struck recently between the US and Japan, South Korea, and the UK, the details on cars and trucks are still not clear, and the tariffs are far from zero.
In Canada, there have been calls for that country’s leaders to change regulations to allow European Union-approved cars to be sold in the country. US and Canadian auto standards have been largely aligned for decades. If EU vehicles are allowed, without tariffs, that $23 billion in imports could begin to shrink even more rapidly.
Source: Bloomberg
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