The Trump administration recently relayed to German automobile industry leaders that it would drop its auto tariff threat if the European Union removed duties on U.S. autos. German Chancellor Angela Merkel is reportedly willing to back cutting these tariffs in order to avoid a further plunge into an already costly trade war.
No such deal has been offered to Canada, although one may deduce that reaching a NAFTA deal is the ultimate goal. If that is the case Canada and Mexico will likely be forced to cede to demands over auto content that were the primary sticking point over the course of negotiations. Auto tariffs between 20-25% have the potential to devastate the industry in Canada.
General Motors Company (NYSE:GM) has warned that auto tariffs could lead to job loss and degrade American car companies like GM. There is debate within U.S. ruling circles over how damaging retaliatory measures from U.S. allies would be.
For Canada, there is little debate. Auto tariffs would be catastrophic for the Canadian auto industry in the near term. A recent report from the Canadian Imperial Bank of Commerce projected that the number of autos made in Canada would fall by 900,000 units per year if the U.S. were to impose a 25% tariff on autos. Trump has said that he does not expect NAFTA to be resolved until after the November midterms.
The imposition of auto tariffs would represent an aggressive bargaining move that could conjure up enthusiasm during the election and cripple the Canadian auto industry in the latter half of 2018.
