Supply Chain Scanner - Week of May 12, 2025

Weekly blog by Emily Atkins

U.S. tariffs and the Canadian automotive industry

The North American vehicle manufacturing supply chain has long been a case study in cross-border cooperation, integration and just-in-time logistics innovation. Its vast and intricate network comprises thousands of companies, including manufacturers, suppliers and distributors all of which make enormous contributions to the economies of Canada, the U.S. and Mexico.

With roots in the early 20th century – notably thanks to Henry Ford and his invention of the assembly line – the auto industry in North America is now a dominant economic player. In 2024 the sector accounted for more than 20 percent of trade, employed 13 million people and made 17 percent of the world’s vehicles.

In the United States alone, the automotive industry contributes US$1.2 trillion annually, accounting for 4.8 per cent of the country's GDP, and making it the single largest industry sector. The industry employs 10.1 million people who draw US$730 billion in pay.

In Canada, the industry contributed C$18 billion in 2023. More than 130,000 people are directly employed in manufacturing with another 550,000 jobs in the aftermarket and sales. It is estimated that for every OEM employee, there is an employment multiplier effect of seven additional jobs. Manufacturing sales of motor vehicles and parts were C$62.1 billion in 2023, accounting for seven percent of total sales (C$862.8 billion).

In 2023, the three USMCA partners produced over 16 million cars. Canada made 1.5 million of those at plants in Ontario. Vehicles are Canada’s second-largest export by value at C$51 billion in 2023. Of that, 93 percent was exported to the U.S. In 2023 estimates show that 62 per cent of Canadian vehicle imports came from the U.S.

Ontario and Michigan together produce approximately 22 percent of North America’s automotive output. Parts cross the border up to eight times before a complete vehicle rolls off the line, illustrating the integration of the industry across the continent. In 2023, there were over 2.5 million truck crossings on the Ambassador Bridge between Windsor, Ontario and Detroit – a significant percentage of these were delivering auto parts.

The 25 percent Trump tariffs will “blow a hole” in the integrated North American auto market, with “devastating” effects, said Ford Motor Company CEO Jim Farley as the proposed levies were announced.
“Overall, tariffs can have a profound impact on the automotive sector supply chain, leading to increased costs, supply chain disruptions, and a decrease in competitiveness. As global trade policies continue to evolve, the automotive sector must remain adaptable and resilient,” Reuters said in an analysis.

For an industry that was already struggling before the tariffs were announced, with OEMS facing pressures to bring down costs and implementing plant closures, wage reductions, job losses and restructuring in 2024, this is truly bad news. In practical terms, this means rising costs, lost sales, plant closures, job losses, bankruptcies, legal wrangling, a looming economic recession and more.

A new study published by the U.S.-based Center for Automotive Research (CAR) estimates the 25 percent tariff on vehicle imports could mean a US$108 billion blow to U.S. manufacturers within the year and cut production by 17.7 million units. The D3 manufacturers could see costs increase by US$42 billion, with their production loss reaching around 6.8 million vehicles.

In the two weeks after the United States applied tariffs on Canadian vehicles, Canadian-based carmakers were in reaction mode. Honda had to deny rumors it was moving production to the U.S. The D3 all put the brakes on and cut production. Stellantis halted retrofitting its Brampton, Ontario, assembly plant and stopped work at its minivan assembly plant in Windsor. It also paused production at five U.S. plants that supply the assembly line. GM temporarily halted work at its Cami plant in Ingersoll, Ontario.

With just-in-time production, these disruptions and shutdowns are going to be inevitable. Whether the machining plant is on the same side of the border as the assembly facility or not, parts still have to be where they’re needed exactly when they’re needed.

But with the OEMs facing cost pressures, they’ll be aiming to keep fewer finished vehicles on hand. That will prompt a shift to build-to-order production, with resulting impacts on suppliers, as well as logistics providers along the supply chain. It will increase unpredictability and will favor those companies with nimble logistics capabilities to meet constantly shifting schedules and order quantities.

Of course, this is still just the beginning of the effects the new tariffs will have on the auto sector. Over the longer term, if the tariffs stay in place, adjustments within the industry made on the fly now will become the new normal.

If Trump gets his wish, manufacturers will be pressured to re-shore their operations to the U.S. to avoid the cost burden of having parts and vehicles cross back and forth over the border, accruing tariffs with every pass. That means the integrated North American automotive industry will be a thing of the past.

With this disruption will come inevitable job losses and harm to the communities that host auto plants, not to mention the Canadian economy as a whole, which relies so heavily not only on the auto trade but exports to the U.S. in general.

Canada will have to reset. “The constant onslaught of tariff announcements has left little question among Canadians that the country must re-orient its supply chain dependence and become more resilient to the shifting winds of U.S. policies. The auto tariff threat does not alter Canada’s competitive advantage with a highly skilled automotive workforce and existing production facilities,” TD Economics said in an analysis.

That means Canadian industry and government together will need to dig in and do the hard work to develop new markets and trading partners. “Despite the unhinged rhetoric and really bad math coming out of Washington, the days of Canada being a net exporter in automotive are long gone,” Andrew King, managing partner at DesRosiers Automotive Consultants Inc. told the Financial Post. “The structural risks of having 95 percent of our exports heading to one country have become clearly evident in the events of recent weeks.”

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Emily Atkins
President
Emily Atkins Group

Emily Atkins is president of Emily Atkins Group and was editor of Inside Logistics from 2002 to 2024. She has lived and worked around the world as a journalist and writer for hire, with experience in several sectors besides supply chain, including automotive, insurance and waste management. Based in Southern Ontario, when she’s not researching or writing a story she can be found on her bike, in a kayak, singing in the band or at the wheel of her race car. LinkedIn: https://www.linkedin.com/in/emilyatkinsgroup/