The ties that bind: Why Canada’s auto sector is uniquely hostage to Trump’s tariff threat

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For Southwestern Ontario’s auto sector, the reckoning caused by U.S. President Donald Trump’s threatened trade war is as intense as anywhere in Canada.

Hundreds of domestic automotive parts and equipment manufacturers, who supply multinational automakers on both sides of the border, were braced at the start of the week for nearly the entire industry to shut down if Mr. Trump made good on his vow to impose a 25-per-cent tariff on Canadian and Mexican imports.

“We all were under the impression that if these tariffs went through, the likelihood of us shipping products by Friday was going to be next to none,” said Don Rodzik Jr., the director of operations for the Windsor-based Narmco Group. Layoffs equivalent to what was seen during the pandemic would have quickly followed.

But as that danger continues to hang over them, despite Mr. Trump deferring the tariffs for a month at least, solutions for how to respond are in shorter supply than for other Canadian industries.

Parts-sector leaders are not immune from the patriotic fervour that has swept the country. In interviews this week, they struck increasingly familiar chords about banding together in the face of U.S. hostility.

But their comments were also tinged with grim acknowledgment that if the tariffs are actually put in place, or Mr. Trump keeps credibly wielding the threat throughout his term in office, some companies will be unable to survive, and others will have to seriously consider moving operations stateside.

The reality is that for a sector so intricately and inextricably tied to the U.S., with roughly 80 per cent of its sales going there, domestic resiliency-building measures, which have suddenly become top national priorities, are an uneasy fit at best.

That includes, for example, knocking down interprovincial trade barriers, which currently tops the list of near-term strategic options being touted by both the government and the private sector, including at the economic summit convened by Prime Minister Justin Trudeau in Toronto Friday.

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No other province in Canada has an auto sector that could step in and even partially replace the U.S. market for vehicle or assembly-line components made in Ontario, nor is there serious talk of any such thing springing up.

“Anybody who is looking for more east-west opportunities in Canada should probably look to other industries,” said Automotive Parts Manufacturers’ Association president Flavio Volpe.

Turning somewhat away from the U.S. in favour of international export markets is not much more promising. While a few producers of highly specialized products do ship overseas, most foreign auto sectors have their own supply chains. And in a just-in-time industry, the logistics of sourcing from the middle of North America wouldn’t make a lot of sense for them.

Diversifying from the auto sector altogether might be more of an option. Some companies once more squarely focused on vehicles have done so already, partly drawn by higher profit margins in energy, aerospace and other sectors. And Diane Reko – whose company, Reko International Group, has done so to an unusual extent, with less than half its sales now auto-related – suggested the interprovincial possibilities may be stronger there.

But for the many relatively small companies that have made highly specific products for a handful of automotive clients – both the automakers themselves and other parts makers – that sort of pivot may be less realistic.

Not helping matters is the fact the hanging tariff threat makes this an extremely difficult time for these businesses to make major new capital investments, for fear of being caught out on a limb if trade suddenly stops. That makes it tougher not just to commit to new product lines but to boost international competitiveness by improving productivity, which is another of the most commonly cited national imperatives.

Joe Goncalves, the interim chief executive officer of the economic development agency in the Windsor-Essex region, where much of the sector is clustered, expressed some optimism about companies being galvanized by the current moment to make overdue upgrades to technologies. His organization is currently working with Ottawa to bring in an international consultancy specializing in productivity audits, he said.

Louis Jahn, the CEO of Jahn Engineering Ltd. and president of the Canadian Tool and Machining Association, sounded more cautious. “We’re delaying all major purchases,” he said, although he noted that the uncertainty has U.S. parts companies in a similar boat.

In fact, if there’s cause for optimism within the Canadian sector, it’s that anxiety levels are not much lower on the other side of the border.

In an interview at Detroit’s regional chamber of commerce, MichAuto executive director Glenn Stevens said the threatened 25-per-cent tariff exceeds the level of disruption expected by Michigan-based industry that his organization supports. And he painted a similar picture of both parts makers and their automaker clients pausing investment decisions while they wait to see how it shakes out.

The industry operates so seamlessly across the border – with components, some of them available only from Canadian manufacturers, crossing multiple times before vehicle assembly – that it could not immediately be disentangled. So for now, the tariffs’ impact would not be to immediately drive much manufacturing from Canada to the U.S., but to significantly slow if not stop production at vehicle-assembly plants in both countries, imperilling American suppliers as well.

So far, Mr. Stevens acknowledged, it’s been hard to communicate those dynamics to Mr. Trump’s administration, which he attributed largely to it being so new. “You can’t get a meeting with anyone,” he said. But he’s hoping that will change, and the warnings will land, once more of its officials are in place.

The hope from the Canadian side is that that will happen before not only a protracted period of shared cross-border pain but an eventual forced exodus.

Even parts companies that currently have factories in both countries, let alone those based solely in Canada, express little enthusiasm for shifting capacity from here to the U.S.

Loyalty aside, stranding Canadian assets is not financially appealing, and there are also concerns about being able to hire enough workers in a tight U.S. skilled-labour market.

“Nothing’s moved, nothing’s moving, yet,” Mr. Volpe said.

But there is no getting around the fact that early, if reluctant, conversations along those lines are happening in a way they weren’t before.

“You start to look at what the possibilities are,” Ms. Reko said. “And in some cases they’re very long term and very difficult.”