Canadian Auto Industry Faces Uncertainty After G7 Summit

The G7 summit in Charlevoix, Quebec broke down on June 9 after the departure of President Donald Trump. Representatives from the Trump administration launched a barrage of personal and political attacks at Prime Minister Justin Trudeau, denouncing comments he made at a press conference on Saturday. President Trump said that he would pursue a more aggressive route in reviewing auto trade between the two countries, which could result in tariffs on Canadian autos.

Tensions between the two allies are the highest in decades. The spat began after NAFTA talks appeared to break down in May, followed soon by the announcement from the Trump administration that it would impose steel and aluminum tariffs on Canada and other allies on national security grounds. Trudeau announced retaliatory tariffs which appeared to trigger the invective we saw from Trump and his orbiters over the weekend.

Shares of Linamar Corporation (TSX:LNR), the second-largest automotive parts manufacturer in Canada, were down 0.23% in early afternoon trading on June 11. Linamar leadership was vocal in opposing demands from the U.S. delegation during NAFTA negotiations. The U.S. side wanted to bump up domestic auto content to 50%, which could disrupt Linamar going forward as about two thirds of its operations are in Canada.

Investors should be watching the ongoing negotiations closely. The chances of a NAFTA deal being reached ahead of the U.S. midterms appear to be dropping quickly. Instead of a win on a new deal the Trump administration may look to turn up the heat on trade in order to shore up domestic support.