Trump Canada Tariffs: Toyota, Honda Face Production Shift

Tariff Threat Looms for Japanese Automakers

Donald Trump's proposed 50 per cent tariff on Canadian car imports targets Ottawa, but Japanese automakers Toyota and Honda may bear the cost. These two firms produce more than 75 per cent of all cars made in Canada. Analysts suggest they could close some production lines if tariffs begin on 1 January.

Last year, Canadian-built cars represented almost 25 per cent of Honda's US sales and 17 per cent of Toyota's, according to Barclays analysts. This exposure makes them highly vulnerable to a levy increase from the current 25 per cent.

Broader Market Pressures and Industry Impact

The timing for Japanese automakers is difficult. They already experience intense competition from low-cost Chinese electric vehicles (EVs) in markets such as Southeast Asia, Europe, and Latin America. The United States remains their largest market, crucially, one where Chinese rivals like BYD do not operate.

Canada's auto industry builds around 1.2 million cars annually and supports some 427,000 indirect jobs. Toyota exports the RAV4 and Honda the CR-V from Canada to the US; both are top-selling SUVs. Julie Boote, an autos analyst at Pelham Smithers Associates, cautions these tariffs could severely damage the Canadian auto industry.

Strategic Shifts and Cost Implications

Past US tariffs cost Toyota 1.4 trillion yen ($8.8 billion) in the last financial year. Toyota now focuses on expanding US production, planning up to $10 billion in investments over five years. This includes a new $3.6 billion plant in Texas, moving Tacoma pickup truck production from Mexico.

Honda, struggling with its car business, faces additional strain from potential tariffs. A senior executive recently stated the company might delay an eighth North American assembly plant without an extension of USMCA free trade talks. South Korea's Hyundai also delayed investment decisions last year due to USMCA uncertainty.

Supply Chain Reconfiguration for Asia

If tariffs take effect, Toyota and Honda would likely redirect Canadian-built vehicles to other markets. They would then need to secure alternative supply for the vital US market, a complex task. US-bound vehicles often require specific tailoring and regulations, while other factories may already operate near capacity.

Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory, describes this as a "major shift" from past practices. Japanese suppliers report planning is impossible given the ongoing uncertainty.

For Asian companies, this demonstrates the need to re-evaluate existing, cross-border supply chains and manufacturing footprints, potentially increasing costs and complexity across the region.