Tariffs would spark ‘carmageddon,’ auto sector representatives say
Representatives of the TORONTO Canadian auto industry warned Tuesday that proposed tariffs on U.S. imports of vehicles and auto parts would decimate the industry and send the Canadian economy into a tailspin.
“A 25-per-cent tariff on parts and cars would cause what we like to call ‘carmageddon,’ ” Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, told a House of Commons committee on Tuesday. “The industry operates on single-digit margins and it would grind to an immediate halt with a 25-per-cent increase in price.”
Last month, U.S. President Donald Trump initiated a Department of Commerce investigation to determine the national security effects of imports of automobiles and automotive parts under Section 232 of the Trade Expansion Act of 1962, the same legislative move used to impose steel and aluminum tariffs.
The Commons committee on international trade met with a range of witnesses representing the steel and auto industries to discuss the impact of tariffs on Canadian businesses, largely focusing on steel and aluminum tariffs that are already in place.
Still, the proposed 25-per-cent tariffs on vehicles and auto part imports to the U.S. prompted several representatives from the Canadian auto industry to warn the committee of the potentially devastating effects of such a move by the U.S. administration.
“Let me say this plainly. Steel and aluminum tariffs, while significant and negative for the retail automotive market, are minimum compared to the tsunami-like economic downturn that will occur should we be subjected to a 25-per-cent tariff or even lose NAFTA,” warned John White, the chief executive officer of the Canadian Automobile Dealers Association.
“In our view, the effects of the 2008-2009 economic situation would pale in comparison to what our members and the Canadian economy would face if we end up with a 25-per-cent tariff on our cars.”
A TD Economics report last week said auto tariffs would permanently reduce Canada’s longterm economic capacity, but the most significant harm would be concentrated in Ontario, where one in five jobs in the manufacturing sector would be at risk. GDP growth in Ontario could be reduced as much as two percentage points, according to the report.
Another report by Moody’s Investor Services released this week said the tariffs would be negative for nearly all members of the auto industry, including automakers, parts suppliers, dealers, retailers and other transportation companies. American automakers with plants in Canada would not escape potential damage from the tariffs, including General Motors Co. and Ford Motors Co., which import 30 and 20 per cent of the vehicles they sell in the U.S. from Canada and Mexico.
“The economic stability of Ontario is at risk, but equally in Michigan, Ohio, Indiana, Pennsylvania, Kentucky, Alabama, and New York,” Volpe said. “That action by itself would send those regions “into a recession immediately.”
White urged the government to return to the NAFTA bargaining table and secure an agreement as quickly as possible to “avoid, at almost any cost, a trade war on automotive with the U.S. to save both sides of the border from a very destructive path.”
Volpe said Canada needs to begin looking at its options and potential responses, given “the fact that an irrational actor will likely impose these tariffs.” He said legal challenges in U.S. district courts are an option being considered, which the government should support in some capacity. He also stressed the importance reaching a NAFTA deal.
“Certainly from an operational point of view, we really have a very short period of time before everything grinds to a halt,” Volpe said. “It’s a big mess, and it would be best to avoid it if we close NAFTA deal ... The Canadian industry has expressed that there are acceptable terms on the table, so let’s do what we can and get to it.”