Duties on steel and aluminum, materials extensively used in auto manufacturing, would likely make cars even more expensive. A person looks under the hood of a Chrysler vehicle on display at the Canadian International AutoShow in Toronto, on Feb. 13.Carlos Osorio/Reuters
Tariffs hitting North America’s tightly integrated supply chains would badly hurt the wallets of Canadian car buyers, according to recent analyses by two research firms.
U.S. President Donald Trump has said his country will roll out across-the-board duties on Canadian and Mexican goods on March 4, although U.S. Secretary of Commerce Howard Lutnick said on Sunday the levies might not be 25 per cent, as originally planned. The White House has also threatened tariffs of 25 per cent on steel and aluminum imports from Canada and other countries starting March 12. Ottawa has vowed to retaliate in kind.
In Canada, tariffs and countertariffs of 25 per cent on cars and auto parts could add as much as $6,000 to the average price of a new vehicle, with consumers possibly feeling the pinch within months of the implementation of the new duties, according to estimates by research firm J.D. Power.
The trade barriers could also quickly scramble the used auto market, eventually pushing up prices there as well, according to Canadian Black Book (CBB), an automotive analytics company, which also used duties of 25 per cent for its calculations.
Tariffs on steel and aluminum, materials extensively used in auto manufacturing, would likely make cars even more expensive, said Robert Karwel, director of customer success at J.D. Power in Canada.
In the new vehicle market, higher price tags would show up at dealer lots between one and two months on average, Mr. Karwel said.
That’s roughly how long it would take to deplete current vehicle inventories in most cases, he said. However, for high-demand models such as hybrid compact and subcompact SUVs, it could take as little as three weeks for dealers to run out of vehicles made before the tariffs.
Carmakers, on the other hand, would feel the impact of the duties right away. Mr. Karwel said manufacturers would likely absorb some of the added cost while downloading a portion of it onto consumers.
U.S. tariffs of 25 per cent on Canadian goods would likely translate into average price increases of between $750 and $2,000 for car buyers north of the border, he said. While it’s American importers who pay U.S. duties, North American-made auto parts often cross the Canada-U.S. border several times as they move along the supply chain, a process that would incorporate the cost of U.S. tariffs even in vehicles sold in Canada.
But the bigger effect on prices for Canadians would come from Ottawa’s response, J.D. Power estimates. Symmetrical countertariffs could bring the average price hike to between $5,000 and $6,000 per vehicle, according to Mr. Karwel.
“If you’re thinking of buying a new car, buy it now before the tariffs come into place,” he said.
Still, the impact of a tariff tit-for-tat on consumers would vary significantly, depending on make and model, Mr. Karwel said.
The U.S. auto giants, General Motors, Ford, and Stellantis, along with Japan’s manufacturing behemoths Toyota, Honda and Nissan, which have built extensive supply chains in North America, stand to bear the biggest hit from tariffs, he said.
South Korean automakers, such as Hyundai, have also built up their presence in the U.S. but are less reliant on North American manufacturing, according to Mr. Karwel. At the opposite end of the spectrum are European brands and smaller Japanese names such as Subaru, which still ship a hefty chunk of their cars and parts from overseas.
Still, he said, “there are very few brands that have absolutely zero impact.”
Buying used might shelter Canadians from the impact of a trade war in the short term, but likely not for long, according to CBB’s analysis.
With a significant portion of Canada’s used vehicles usually sold in the U.S., tariffs would curtail American demand, resulting, at first, in more preowned vehicles available for Canadians and a dip in prices.
But those gains for Canadian consumers would likely dissipate if the duties stayed in place for a prolonged period, said Daniel Ross, senior manager of industry insights and residual value strategy at CBB.
Over time, higher prices for new cars would push more domestic buyers to turn to the used market while simultaneously giving drivers an incentive to hang on to their existing rides for longer. That combination of higher demand and lower supply would push up prices, Mr. Ross said.
But even in a scenario in which preowned vehicles were exempted by the tariffs, Canadian consumers wouldn’t score a win, according to the CBB analysis.
The loonie’s weakness against the U.S. dollar would likely continue to feed Americans’ appetite for Canada’s cheap hand-me-down cars, with U.S. demand growing even stronger if trade duties made new vehicles more expensive. This would leave Canadians with both limited inventories in used car lots and higher prices.
Still, Mr. Ross doesn’t see used car values climbing to the record highs set in the latter stages of the pandemic.
For Canadian consumers, that might be the only meagre consolation.
