President Trump’s attempt to coerce car manufacturers to repatriate production to the United States poses an existential crisis for Canada’s auto sector.
Until now, close cooperation in the automotive supply chain has allowed Canadian, American, and Mexican suppliers to reap the benefits of specialization. But this integrated approach has exposed Canada’s domestic industry to Trump’s tariff attacks. The president’s 25 percent levy on cars assembled outside the U.S. (with more tariffs on auto parts to come) is already leaving Canadian manufacturing capacity idled and skilled auto workers facing an uncertain future.
If we were to consume what we produce—the parts and vehicles to put about two million cars on the road every year—we would create a large, stable, domestic market.
Bentley Allan, Transition Pathway Principal, The Transition Accelerator
It’s time to refocus our auto sector on our domestic market and build more cars in Canada.
The opportunity lies in the math: Canada exports about $100 billion a year in cars and parts to the American market. Yet the Canadian trade surplus in the sector is just $2.4 billion annually. In other words, Canada exports almost the same value of automotive products as it imports.
Meanwhile, Canadians buy about 1.8 million cars a year, a higher number than the roughly 1.3 million cars (down from 2 million in 2018) that we build here.
If we were to consume what we produce—the parts and vehicles to put about two million cars on the road every year—we would create a large, stable, domestic market.
How would this work? A made-in-Canada strategy would require a carefully designed “buy Canada” policy mix, an agile public-private collaboration to retool the industry to use more Canadian parts, and international partnerships with Mexico, Japan, and South Korea.
The strategy would focus on incentivizing purchases of vehicles that are already made, or planned to be made, in Canada by world-leading car companies. Ford, GM, Honda, Toyota, and Stellantis already make or plan to make 13 models in Canada. The top five of these models account for about 20% of overall Canadian sales. Supply-side support and demand-side incentives will be needed to drive this number up.
An auto sector with a strong Canadian upstream and midstream supply chain can stretch from coast-to-coast-to-coast.
Bentley Allan, Transition Pathway Principal, The Transition Accelerator
The multi-year process of building factories will require a healthy combination of public and private capital investment. Canadian governments and corporations will need to procure their fleets from Canadian manufacturers. And manufacturers will need to retool their production to maximize the amount of Canadian content in the vehicles they assemble.
Canada was already involved in a generational effort to integrate the automotive supply chain with upstream mining and midstream chemical processing through battery supply chains. The tariff crisis presents an opportunity to redouble efforts to build an electric vehicle industry, while maintaining and transitioning existing capabilities in combustion technologies.
And it shouldn’t stop there. The automotive sector is home to highly specialized manufacturers of tools and precision components. These are exactly the capabilities Canada needs to bolster its clean energy economy and increase defence production.
Finally, we will need new international partnerships. With Mexico, we can and must continue the specialized integration of parts manufacturing. New automotive pacts will be needed with South Korea and Japan to balance trade access for both finished vehicles and upstream minerals and parts. Deeper integration can benefit both parties, but right now, Canada runs automotive trade deficits with our Asian partners.
In reimagining the Canadian auto industry, we must see it as a dynamic engine that invigorates our manufacturing capabilities and drives growth in resource and other sectors. Doing so turns this into a national project, not one focused solely on Ontario’s auto-rich manufacturing base. An auto sector with a strong Canadian upstream and midstream supply chain can stretch from coast-to-coast-to-coast.
The Trump-initiated crisis has vividly revealed the degree to which Canadian auto manufacturing has become subsumed into continental production. But with smart industrial strategy, we can turn short-term economic pain into a visionary project of nation-building, ensuring high-value jobs across the economy for decades to come.