Could Canada phase out the auto sector?

The movement of more auto operations stateside in the face of Trump's tariffs could mean that Canada needs to be less reliant on the sector.

In a trade war where the goalposts and focus change by the day, U.S. President Donald Trump’s latest target appears to be Canada’s auto sector.

A brief reprieve from tariffs provided for the automotive manufacturing sector is set to come to an end in April.

Upon the request of auto dealers Stellantis, Ford, and General Motors, the President granted the one-month pause for auto tariffs.

In a recent Globe and Mail opinion piece, Chris Worswick, the head of the economics department at Carleton University, suggested this could be an opportunity to “phase out” Canada’s auto sector.

“I think we need to figure out where things are going with this tariff war before making any big decisions,” Worswick told CTV News. “And so what I’m suggesting is that, you know, maybe there’s another way to go here, instead of putting the money into bailing out companies.”

Important but not essential

Likening Canada to Australia where auto production has ceased, Worswick argues the country can have a sustainable economy without the production of vehicles.

He noted the phaseout would amount to a loss of one per cent of Canadian jobs, and additionally a disappearance of one per cent of the country’s GDP.

“The auto sector is important, but it’s not essential,” he said.

The phase out could be through a decision by U.S. automakers to leave Canada, or a decision to not provide funding for vehicle manufacturers potentially hit by tariffs.

“I think that the orders would dry up, you know, and you’d see layoffs. And that would be very hard, obviously, for the workers and families involved,” Worswick said. “But I would expect the knock-on effects to be kind of short-lived as producers shift to other sectors, in terms of their operations.”

In part, the Trump trade tactics appear to be a push for vehicle manufacturers to pack up Canadian assembly lines and move them to the U.S.

Worswick’s article argued this may be an opportunity to reconsider the $43.6 billion in government incentives for electric vehicle battery plants.

“We probably need to start investing more in our military production, and so one concrete suggestion I would make is that the federal government could look at putting production facilities for military hardware in the places where the layoffs are worse,” Worswick said.

The case for the auto sector

Rather than pivot, Flavio Volpe the president of the Automotive Parts Manufacturers’ Association, said Canada shouldn’t waver to Trump’s tariffs.

“[The editorial] struck me as the first wave of people ready to surrender before we go into a type of war,” Volpe said about the Globe and Mail article.

“My message to him is we’ll take it from here. We’ll let you know when we need you to apologize for us.”

Volpe said U.S. auto giants can’t afford to give up on Canadian production and could see bankruptcy under tariffs.

A recent S&P Global report stated tariffs are expected to cause an extended disruption. A trio of scenarios describing the impact of the added tax stated the chance of long-term slowdowns has risen.

“The latest Administration action has increased the likelihood of an extended disruption period lasting 16 to 20 weeks, now estimated at a 50 per cent probability of occurrence. During this time, several high-exposure vehicles will slow or cease production,” the report read.

Volpe noted the Canadian government should be focused on financial support for those affected, including auto producers.

In the long-term, he said it could provide opportunity for the industry.

“It’s tough in automotive because the margins are so small that you can’t sell on either side of the oceans,” Volpe said. “But if the president of the United States is going to raise everybody’s price by raising tariffs everywhere around the world, he’s suddenly opening new markets for us.”