President Donald Trump’s planned 50% tariff on Canadian automobiles and auto parts is poised to hit Japanese automakers, which have built production and supply chains spanning the United States, Canada and Mexico. On Monday, Trump said that the United States will double the tariff rate to 50% on Jan. 1, 2027. Japanese makers established North American production networks based on the USMCA, a free trade pact among the United States, Canada and Mexico, which exempts qualifying goods from tariffs.
But a review of the agreement, which took effect in July 2020, has dragged on, while worsening U.S.-Canada relations are another complication. The USMCA was negotiated during Trump’s first administration. Automakers, including U.S. companies, have established vehicle plants in not only the United States but also Canada and Mexico for supply to the U.S. market.
The controversial 50% tariff is expected to apply even to vehicles and parts that meet USMCA requirements. Toyota vehicles including some Lexus luxury brand models and the RAV4, an SUV, at its Canadian plant for export to the United States. Toyota-affiliated parts makers Denso and Aisin also export air conditioner components, door frames and other products from Canada.
Honda exports popular models including the Civic to the United States. An official at its local unit says the volume is on the scale of 300,000 units a year. Japanese automakers are struggling even at the current U.S. tariff rate of 25% for vehicle imports from Canada.
The planned hike to 50% “would make operations at Japanese companies with bases in Canada untenable,” the executive said. Viewing the high U.S. tariffs as more than a temporary measure, Japanese automakers plan to expand production in the United States. The deterioration in U.S.-Canada relations could also affect the ongoing USMCA review, making it harder for companies to revamp their supply chains.
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