The Auto Industry Runs on Precision. Trump’s Tariffs Are Chaos.
On Tuesday at midnight, President Trump’s long-promised 25 per cent tariffs on Canadian imports took effect. The next day, Trump changed his mind and implemented a one-month pause for automakers to move their production to the U.S. The day after that, he suspended almost all tariffs until April 2.
University of Windsor automotive engineering professor Peter Frise predicted the flip-flop, especially as Wall Street lost more than $3 trillion last week. “Trump cares deeply about the stock market, and I think he saw the crash,” says Frise. “I also suspect the White House was bombarded by visits, letters and phone calls from business leaders warning him just how bad things would get.”
Tariffs will affect most, if not all, industries in Canada, but none as immediately or obviously as the automotive industry. For automakers, the fallout could mean mass layoffs within weeks. For consumers, it’s sticker shock—they can expect to pay $50,000 today for a vehicle that cost $40,000 yesterday. We spoke with Frise about how Trump’s tariffs could affect the automotive industry, why it’s a particularly vulnerable sector and how automakers and consumers can fight back.
My understanding is that, if Trump slaps 25 per cent tariffs on automakers, cars will get 25 per cent more expensive. Is it that simple?
In general terms, yes, the cost of a car will go up significantly. That will be true in all three NAFTA countries, because Canada, Mexico and the U.S. trade parts back and forth. For example, the aluminum that goes into the pistons in your car’s engine was smelted in Quebec, shipped as a big block to the U.S. where it’s melted down, cast into a piston and assembled into an engine. Then, it’s reshipped to Canada to be built in Windsor, Ontario, then the whole car goes back the U.S. again to be sold. Every time anything crosses the border, it will be taxed, and it costs more every time.
Are there any cars made entirely in Canada or entirely in the U.S.? Is that where we’re headed?
Every car I can think of is made all over the place. For example, Corvettes are made in Kentucky, but their gearboxes are made in St. Catharines, Ontario, and the aluminum for the engines comes from Quebec. North America and Europe have the same system, where parts move freely across borders, and the sourcing of parts changes all the time. This is of course what Trump wants to stop, but moving all of that to the U.S. will take many, many years.
Last Wednesday, Trump granted automakers a one-month reprieve from the tariffs, supposedly to give them time to move production to the U.S. But it sounds like they’ll need a lot more time than that.
If these tariffs were in place for maybe 10 years, then the industry’s supply chains will begin to adjust. It will take that long because every material in every step of the chain will have to be reconsidered. To make aluminum, for example, you need bauxite and a huge amount of electrical energy. America could get bauxite from Brazil, which would surely be happy to sell it to them, but to generate enough electricity, they’d need to build railroads or pipelines and power plants. Quebec already generates a huge amount of hydroelectric power just because of geography—they have a lake at the top of a hill where water falls. Quebec makes so much power that they’re able to sell most of it to the U.S. This is true of Manitoba and Ontario too.
Ontario Premier Doug Ford has threatened to cut off power to New York, Michigan and Minnesota. What do you think about that strategy?
Get ready for the lights to go off! When Americans don’t have electricity to make their toast in the morning, they won’t be happy. But the auto industry won’t need to wait that long to feel the pain. As Ford warned, the fallout from tariffs could hit a week or two after they’re imposed. Car dealers are saying that car prices have already jumped, and it’s consumers who will foot the bill. If someone looked at the same car last week and it cost $6,000 less, then they’re not likely to buy it.
For $6,000, I’m a lot more inclined to take the bus.
That’s exactly what’s going to happen. The sales of new cars will almost certainly drastically slow. When that happens, production will slow too. Take Chrysler Pacificas, which are assembled at a plant in Windsor about a half-hour from my house, where around 6,000 people work. There are also the truck drivers bringing in supplies—let’s say, seats—which are made at another plant in Windsor, which in turn gets their foam from Mississauga and their springs from steel factories in Hamilton. So, as soon as you stop selling cars, you stop building cars, and the whole supply chain grinds to a halt. Plants will close, and we’re looking at thousands of layoffs. It doesn’t stop there. Business will slow in the restaurants along the highway where the truckers used to eat their breakfast, lunch and dinner. Everybody makes less money, everybody shops less, and so on. This is going to hurt everyone in Canada and the U.S.
Are automakers in Canada and the U.S. doing anything to mitigate the effects?
I’m not an employer of any automaker, but I suspect most of them have already brought in as many materials as they can to avoid tariffs. That’s so hard to do though because the entire auto industry works on a production system called “just in time” or JIT. When they’re building a vehicle, parts come right at the time during assembly when they’re needed; they’re not stockpiled and stored, which takes up room and costs money to store. Imagine stocking all the engines, windows, carpets, seats and tires all the time. That doesn’t work. Like everything in the industry, this is done for three reasons: cost, efficiency and quality. Everything is set up and highly optimized to produce the right amount at the right time, and you can’t come to the system and turn a dial without adversely affecting everything else.
Have you ever seen tariffs like this before? Did they ever work?
No, they never work. The most famous American example is the Smoot-Hawley Tariff of 1930, which tacked on 20 per cent tariffs on U.S. imports. It had disastrous effects and only deepened the Great Depression. Canada had tariffs on exporting cars in the 1950s and, in the end, the additional taxes all fell on the consumer, as they always do, because there’s no one else to pay. Any other characteristic is absolute nonsense.
Do you think it’s possible that Trump just changes his mind about tariffs altogether?
Absolutely. Everything could change tomorrow, or today, which is a crazy way to run the largest economy of the world and the most complex trading relationship in the world.
Whether or not these tariffs happen, what does this fiasco say about our relationship with America?
Canada is America’s closest neighbour and friend, and this is an insult. That we don’t know what’s coming or when they’re coming is a reflection of Donald Trump’s general tactic of shock and confusion. He likes it when everything’s up in the air and he can move things around, saying he hadn’t meant what he’d said or that he changed his mind. He wants people running in all directions so he can do whatever he wants.
This interview has been edited for length and clarity.
