The Decibel - At its core, the Canada-U.S. trade dispute is about autos

Episode Date: August 27, 2026

The auto sector is at the heart of trade discussions between Canada and the U.S. Canada’s auto sector has been hit hard over the past year with tariffs from U.S. President Donald Trump. How the U.S. was planning on dealing with the auto industry was one of the reasons the trade deal between the two countries fell apart over the weekend. So today, The Globe’s economics reporter, Mark Rendell, explains why trade discussions focus so heavily on the auto industry, what impact the tariffs have had, and what it means for a sector that is already struggling. Questions? Comments? Ideas? Email us at [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

In all the hubbub about the trade war with the U.S., a lot of the discussion has revolved around Canada's auto sector. The tariffs that U.S. President Donald Trump brought in last year hit the auto industry hard, along with steel, aluminum, and lumber. Canada imposed a retaliatory tariff against U.S. autos that led in part to the tariffs that came into effect over this past weekend. The details of the auto tariffs and carveouts were one of the major sticking points of the deal that Canada and the U.S. were negotiating into last weekend, the deal that fell apart spectacularly. Then on Monday, Trump threatened new 50% tariffs on Canadian autos and auto parts. So today, I'm talking to Mark Rendell. He's the Globe's economics reporter who's been covering

the ins and outs of the trade war with the U.S. He'll explain why the auto sector is such a focal point in the trade war, how the tariffs are affecting it, and what the current chaos means for the the already struggling auto industry in Canada. I'm Mikhail Stein, in for Cheryl Sutherland, and this is The Decibel from the Globe and Mail. Mark, thank you so much for joining us today. Thanks for having me. Okay, let's get into it.

We're talking autos. Autos. Why is the auto industry such a big focus in these trade discussions with the U.S.? It's always about autos. I mean, autos are at the heart of North American economic integration. Autos are at the heart of the industrial manufacturing base that we've made in Canada in connection with the U.S. and with Mexico. And so when we are talking about trade, whether this is discussions about the future of Kuzma, USMCA, whether it's discussions that we've seen in recent weeks about what to do with all these sectoral tariffs, it usually revolves around automobiles.

And that's because, you know, autos are a crucial sector for all three countries, Mexico, United States and Canada. and everybody's always trying to fight over the little piece of the pie, right? So you have three countries, each wants to produce autos for the North American market and trying to divvy up that pie. Fighting over that pie is what a lot of trade disputes are about and a lot of trade rules, a lot of negotiations revolve around the different governments, trying to figure out ways to incentivize production, make sure the big automakers keep production in Canada's case in Ontario.

And can you bring us back? If we look back at previous trade negotiations, how important have autos been in those negotiations? I mean, autos, you can go many decades back. Autos have always been at the center of Canadian trade policy. So, you know, if you go way back to the 1930s, like the OG auto sector, you know, that emerged behind a tariff wall. Canada had a 35% tariff. It made it so, you know, Ford and GM and all these companies, if they wanted to sell into Canada, they had to set up brand. plants in Canada, and they produced behind this big tariff wall, and then they sold in Canada,

and they sold all over the British Empire because they had preferential access, all of that. But it was kind of a branch plant economy. In the 1960s, it was a big push to kind of integrate the North American auto industry, and you had something called the Autopact, the U.S. Canada Autopact. And basically what that did was it meant that autos could trade tariff-free between Canada and the U.S., But in return, to stop like all of the auto plants suddenly, you know, getting vacuumed out of Canada back to the U.S., they came up with a system where if you wanted to trade tariff-free, you had to produce a vehicle in Canada for every vehicle that you exported. And so the whole idea was we're going to use access to the Canadian market, which obviously all of the big market, lots of Canadians love autos. We're going to use access to that market to incentivize the big American auto companies to stay in Canada.

Canada, in all the kind of trade discussions through most of the 20th century and into the NAFTA period and the USMCA period, a lot of the kind of trade policy conversations have been, again, around how do you incentivize that production? And once you got to the USMCA negotiations in 2018, 2019, at that time, a big goal of the Trump administration, and in fact, Ottawa as well, was how do you address the fact that Mexico, which got brought into all of this kind of continental system in the 1990s and really did, was the big winner of NAFTA. It went from producing, you know, basically just for its domestic market to being, you know, producing four million vehicles a year, selling massively to Canada, the U.S., all that kind of stuff. And so big part of the USMCA talks were about how do you up the North American content, but also how do you kind of tweak content rules to try to prioritize production in Canada and the U.S. So again, it's one of these things, these trade discussions, these trade talks. It's always people in Ottawa and Washington and Mexico City trying to tweak the rules to make sure that their share of the auto sector stays in their own country.

And in many ways, it's not a zero-sum game because the industry does benefit, employment does benefit from having a sector that is thriving, that is profitable, all of these kind of things. But at the end of the day, they are also all competing for these big, massive auto factories that kind of anchor entire industrial ecosystems. Okay. So you've laid out kind of how big a priority autos have been in trade negotiations, as you say, going back almost 100 years. So why is it worth going to bat over? How big a deal is it in Canada? It is slowly becoming less of a big deal as the industry declines, but it's still a major industry. So, you know, in Canada, we about, give or take, 125,000 people are employed directly

in auto production. Now, that's a combination of auto parts and automobiles themselves, and auto parts are actually the bigger, the bigger part of that employment. But, you know, 125,000 jobs, you know, if you look at all the downstream jobs, you get closer to 400,000 plus. So that's in sales, dealerships, repairs, all that kind of stuff. So the auto industry is significant. It's jobs. They're also very significant anchors of the broader kind of manufacturing ecosystem in Ontario. So think of all the inputs that go into cars.

It's not only the auto parts themselves that go into final assembly, but it's plastics, it's steel, it's metal, it's aluminum, all this kind of stuff. So the industry is seen as, again, a kind of anchor of the broader manufacturing ecosystem centered in eastern Canada, specifically centered in Ontario. So it is, however, less significant than it was two decades ago. You know, in the year 2000, Canada produced about three million vehicles a year. We're down to 1.2 million. So a precipitous drop, precipitous drop, you know, six factories have closed over that period.

One reopened. We're down to eight kind of operational factories now. And even in the last year or so, you've seen, you know, Two factories or one factory essentially stopped production, the Kami factory that was producing the bright drop vans. You had Stalantus say that it was moving its Jeep production from Brampton down to the U.S. Kind of most shockingly, you had Honda pull back from a $15 billion investment they had promised in Alastin and other areas of the province, which was going to be to produce kind of EV and whole EV ecosystem. So EV assembly, batteries, all of that, that's all being put on pause.

So it's the industry is in, it's in a rough shape in Canada for sure. And it's been in a steady decline over a two-decade period. Now Ottawa and Queens Park, Ontario government have done, have thrown a lot of money at it to try to stop that steady decline. You know, every time a company wants to retool a plant, Ottawa and Ontario are like, here's $500 million. Build your next line of, I don't know, Dodge Chargers or whatever. In recent years, like a huge part of the Trudeau government's industrial policy push was around trying to build out an EV ecosystem. You know, they put upwards of $50 billion kind of on the line to stand up this EV battery and ecosystem. And that's all essentially being nuked.

And that's, you know, I shouldn't say it's all being nuked. But, you know, the Trump administration's decision to massively gut electric vehicle subsidies has completely thrown a loop in kind of how the North American auto industry thinks. about electric vehicles. EV adoption is lower than a lot of people kind of thought and were hoped for. So the idea that you were going to save the industry by electrifying it, you know, that's not really going terribly well. So that's kind of where we're at. Yeah.

So we were already seeing kind of an industry in decline. And then the auto industry was hit with tariffs last year. These were the Section 232 tariffs. Can you remind me how those work? Yeah. So the Section 232 tariffs, these are the sectoral tariffs. that we hear about all the time on steel, automobiles, lumber, aluminum. Technically, these are put in place for quote-unquote national security reasons in the United States.

The U.S. is essentially using these tools to try to boost each of these strategic industries in the United States. So boost steel production, auto production, all of that. What it means in effect, though, is they're also trying to reshore. So they're trying to pull factories into the U.S. from other countries. So these tariffs apply to every country around the world, but they've hit Canada and Mexico particularly hard because we are so integrated, right? You'll hear it so often it's almost a cliche, but auto parts do cross the border, you know, like eight times before they end up getting into a final assembled vehicle. These are highly, highly integrated markets. You know, we import a huge number of cars from the United States and Mexico for our market.

We export 90% of our cars to the U.S. So the 232 tariffs on autos, they don't apply to auto parts. at least for now, they apply to finished vehicles. It's a 25% headline rate. Now there is a carve-out for U.S. parts in there, which means about 50% of a given Canadian vehicle is usually made of American auto parts. So what that means is you subtract that out

when you're applying the tariff. So let's say you have a $50,000 vehicle sending it from, I don't know, Windsor over to Detroit. There's a 25% tariff on that. but if half of that car, so $25,000 value in that $50,000 car is made of U.S. auto parts, you'll only be tariffed on the $25,000 that's not U.S. content. So what that does, big picture, sounds confusing, lots of math numbers, but what it actually means is it essentially halves the effective tariff rate.

So instead of paying 25%, you're really paying about 12.5%. So that's the situation we are still in. A lot of the trade talks in recent weeks, the primary goal, goal for Canada was getting each of the section 232 tariffs lowered. So they wanted lower tariffs on steel, aluminum, lumbars, and autos. The deal that was on the table, we at the globe did lots of reporting around this. It's since being confirmed by, you know, the U.S. trade representative as well, is that the tariff was going to go from 25% down to 15%. And again, you carve out half of that. That's like 7.5% average effective tariff rate. Sounds pretty good. Why didn't they sign the

deal. Well, lots of reasons they didn't sign the deal. We've heard Carney point to a bunch of things, but specifically in the auto sector, at the very last minute, we are told by Carney and our reporting, you know, talking to auto sources and others seems to bear this out. Ottawa thought last Tuesday that the tariff relief was going to apply to all vehicles produced in Canada. On Friday, when they saw the text, it seemed like the relief wasn't going to apply to mid-duty and heavy-duty trucks. So that is the General Motors, you know, the Silveradoes that are produced in Oshawa and the Ford F-Series trucks that are going to be produced in Oakville. So Ford is investing, you know, $5 billion to retool its Oakville plant to produce Ford F-series trucks. Very popular.

The Silveradoes and the F-series wouldn't be getting relief because somebody at the last minute on the U.S. side decided they didn't want to carve out mid and heavy. duty trucks. That doesn't seem to be the only thing that sunk the deal, but when Carney was asked about why did you walk away from the table on Friday, the first thing he mentioned was the fact that at the last minute, Canada learned that the Ford F-series and the Silveradoes wouldn't be included in tariff relief. Hard to imagine that, you know, Ford is going to want to continue with retool in the factory, continue building out the F-series production in Oakville if there's still a 25% tariff in place. So, you know, one of the reasons they walked away from the table, where does

leave us, though. It still leaves us with the status quo, which is 25% on Canadian vehicles. We'll be right back. Okay, so if we're staying with these Section 232 tariffs for another minute here, after the U.S. brought those in, Canada brought in counter tariffs on U.S. autos in response. So what did those counter tariffs look like? Yeah, so Ottawa kind of took a bit of a carrot and a stick approach to it. So they slapped 25% tariffs on U.S. US vehicles, but they also introduced a system called a remission system, which basically meant that if a auto company, so Ford, GM, Stalantis, Honda, and Toyota, who are the five that produce in Canada, if they maintained their production levels in Canada, they would get

a tariff waiver. So it was basically an incentive to say, you guys really like the big Canadian market, you like selling into the big Canadian market. If you want to access that, tariff-free and not get whacked with this 25% tariff-free. you're going to have to maintain your level of production there. What's really interesting is all the other, the auto companies that don't have production in Canada. So think like Volkswagen, Hyundai, the Koreans, the Germans, all that kind of stuff. They just started shipping, in order to avoid the tariff system, they just started shipping vehicles from Mexico, Asia and Europe into Canada.

So you actually saw a very steep drop in exports from the U.S., vehicle exports from the U.S. to Canada. that wasn't necessarily a drop from, you know, the five that actually produce in Canada because they could get a waiver from those tariffs. They didn't actually have to pay it as long as they maintain production. You've also seen Ottawa take some pretty aggressive kind of steps to, you know, browbeat companies into maintaining production. One of the not-so-secret secrets of the auto industry in Canada is it's heavily, heavily supported by governments, Ontario and Ottawa.

They put hundreds of millions of dollars every time you want to build a plant. So they feel like they have a very significant stake in this financial stake. And when Stalantis said it was going to shift Jeep production out of Rampton back to the U.S., Melanie Jolie, the industry minister, wrote a very strongly worded letter to Stalantis saying, if you guys do that, we will sue you. We will reduce your quota in the remission system. And we are going to sue you for all the money that we promised to you or gave to you to retool the. the Brampton factory. So Canada is playing hardball on this. It's playing hardball with the counter tariffs. It's playing hardball with the remission system. And it is saying quite explicitly, look, Bucco's, we backed you. Now you have to back us. So it's safe to say that Trump didn't

like these tariffs, right? No, he did not. If you look at the three executive orders that are behind the 50% tariffs on like 20 billion worth of Canadian exports that came into effect over the There was three executive orders. One was on dairy supply management. One was griping with the premiers for taking booze off the shelves. And the third one was complaints about Canada's counter tariffs on autos and the remission system. And that third category actually was like by far the biggest in terms of the numerical value

of the trade action. So like 18 of that $20 billion in targeted tariffs was tied to Canada's auto retaliation. Now, the weird thing is basically none of those tariffs had anything to do with autos. They targeted things like plastic, cement, electronic parts, paper, a whole range of different things. But it was basically collective punishment for a whole range of Canadian industries for Ottawa's temerity of standing up for its own domestic industry. Right. So that takes us up to Monday. And then on Monday, President Trump says he's going to bring in this new round of tariffs against Canada's auto industry. starting in January. So these would be 50% tariffs. So right now they're 25, this would double them to 50. What do we know about that threat? It is really big. Tariffs are currently 25% on finished

vehicles, up to 50%. You know, that's enough to stop trade. The more shocking aspect is that he's also threatening auto parts. Auto parts have traded tariff-free over the whole past year and a half during the trade war. Even when things got like ultra-altra-heated and everybody was throwing fist, each other, auto parts were carved out. It's a good reason for that. We supply a huge amount of auto parts to the U.S. so they can produce things in Detroit, south of the U.S. You can't just cut off auto parts without having massive downstream effects on auto production in the U.S. So what do we make of them? The fact that he said they're not going to come into force until January, that's lifetimes away in this trade cycle where things change day to day, week to

week. It's after the November midterms. We don't know how the politics in the U.S. is going to change. The threat is so extreme, especially on the auto part side, that it kind of seems hard to believe. So who knows? Who knows where it's going to go? There's a chance. Our counter tariffs doesn't come into effect until September 8th. There is a world where they get back to the negotiating table. It is a maybe slightly distant, hard to believe world, but it is there. It is possible. It is possible. Maybe cooler heads will prevail and they'll get back to the table before September 8th. If they don't, I mean, I guess the next key thing to watch is how the USMCA discussions play out with Mexico. Because the other thing to remember is like, we've been talking about all these

auto tariffs and other tariffs over the past couple of weeks to try to get this interim deal. but it's all happening against the backdrop of like they're trying to renegotiate the whole continental trade pack, the whole USMCA. The US has said it wants a ton of changes in the USMCA around the auto sector. It wants to see 50% U.S. content in every vehicle. It wants to tighten the North American content requirements from 75% up to 82 to 85%. They are discussing these things right now with the Mexicans. and we're not really at the table. We haven't really been at the table

in those discussions all along. There was a hope that if you could get a trade deal in the past week, we might all head into the sunny uplands of USMCA trade discussion. That hasn't happened. But that's in many ways, if you don't get back to the table shortly, the next shoot-a-drop will be

probably what happens on the Mexican-U-S side. And whatever they agree to there is presumably going to be then turned around and said to Canada, you guys want to take it or you want to leave it. Okay, so it sounds like we don't know what level of tariff we're going to necessarily have going forward, but the sense that I'm getting, the more that this goes on, is that there's this realization in Canada that we're probably going to have to live with some amount of levy on

the Canadian auto sector, at least in the kind of short to medium term. Do we know what kind of tariffs the industry could realistically sustain? It depends who you ask. You know, some auto execs or former auto execs will say you need an average tariff rate in kind of the low to mid single digits. So, I don't know, 5% call it on average. Others will say you could live with something a bit higher than that. It really depends on the model. Small cars tend to have less margins.

So think like Honda Civic or something like that. If you're producing a whopping big truck and selling it for gazooks of money, you know, you can potentially have more. margin on that and you can absorb a higher tariff rate. So where does it leave us? Not totally clear. I mean, I think one of the fascinating kind of questions is the U.S. auto industry's kind of big existential threat isn't necessarily just Mexico and Canada. I mean, it's not really Mexico and Canada. It's China. China is now emerging as this massive mega auto power exported something like 8 million vehicles last year. That's like almost as much as the entire U.S. production was exported from China. They are leaps and bounds ahead of everybody on EVs, on electrification, the whole kind of

next generation of automobiles. They are flooding markets around the world. They're undercutting the market in Europe. Germany's auto sector is like in full on panic mode because they don't know what to do about Chinese autos. If the Trump administration was like serious about that threat and serious about having a competitive auto industry that can compete on a global stage with China, having your buddies, Mexico and Canada and your back, you know, producing cars for lower costs, allowing that integrated system that's been built up over decades. That would be a really smart thing to do. But all of this trade action is splintering that market.

I mean, Mark Carney, when he cut a deal with Beijing earlier in the year, said he was going to allow a whole bunch of, you know, 50,000 Chinese electric vehicles into Canada, even more shocking from Washington's perspective. He said, we are going to invite Chinese investment into the Canadian auto space. We're going to ask Chinese companies to come in and set up shop in Canada. That's a no-go zone for Washington, right? So I would bet that if Washington came to Ottawa and said, look, guys, we've decided this is crazy. We're going to give you the best access to the market.

we're going to reintegrate the North American market, but you guys got to keep out Chinese investment. I bet Ottawa would probably take that deal. If, however, America is saying, screw you, we're maintaining tariffs, we don't care if Osherwood dies and Oakville dies, then why wouldn't Canada go look to China? The auto industry doesn't like it.

Ontario doesn't like it. They say don't bring in Chinese vehicles. we don't want to deal with that. But you've got to be thinking, okay, if we're no longer North American, then what are we? What is our market? What is the auto market going to look like? And those are the questions that are at stake. And that's what ultimately where we land in these trade discussions is going to settle

some of those huge, huge questions about an industry that's been around for 100 years. And we'll see what the next 100 look like. Well, we're going to have to see what happens next. It's always a pleasure to talk to you about trade. Thank you so much for coming on, Mark. Hey, always great to be on. Thanks. That was Mark Rendell, the Globe's economics reporter. That's it for today.

I'm Michael Stein, in for Cheryl Sutherland. I produce the show along with Madeline White and Rachel Levy McLaughlin. Our editor is David Crosby. Adrian Chung is our senior producer, and Angela Pichenza is our executive editor. Thank you for listening.