Having already announced 25% tariffs on the Canadian steel and aluminum industry, the United States may soon impose devastating tariffs on the Canadian auto sector. In the face of this economic assault, the Canadian government must be prepared to take action to preserve jobs, investment, and critical industrial capacity.
The Canadian steel and aluminum sectors are going to be hit with 25% tariffs by the United States.
As noted by RBC Economics, Canada is quite exposed to the impact of these tariffs:
“Using the specific product list the U.S. targeted with tariffs in 2018/19, the U.S. accounts for over 90% of Canadian steel and aluminum exports. By our count, the renewal of the tariffs from 2018/19 would apply to roughly $24 billion of Canadian exports.
But that sensitivity runs both ways. Canada is the largest U.S. import market, worth US$ 7.5 billion in steel and $9.4 billion in aluminum products in 2024. Canada accounts for about a fifth of U.S. imports of steel and 50% of aluminum imports.
Moreover, Canada and U.S. steel trade is relatively balanced. Canada is the second largest export market for U.S. steel products, but is a larger net exporter of aluminum to the U.S. Canada’s total 2024 trade balance in steel and aluminum products (those targeted with tariffs) was $14 billion, with $11 billion from the aluminum trade.”
Even if the steel and aluminum industry manages to weather the impact of these 25% tariffs, this could only be the first blow to the sector.
The Trump Administration has said that if the U.S. ultimately imposes a threatened 25% blanket tariff on Canada, that tariff would be on top of the existing 25% tariffs on Canadian steel and aluminum:
“U.S. President Donald Trump’s planned 25 per cent tariffs on steel and aluminum imports would be stacked on top of other levies on Canadian goods, says a White House official who confirmed the plan Tuesday on background.”
This would amount to a 50% tariff on the steel and aluminum sector, something not easily brushed off.
And this is not the only trade threat our nation is facing.
Despite decades of deep integration between the Canadian U.S., and Mexican auto sectors, Donald Trump appears to believe we have ‘stolen‘ the sector from our southern neighbours:
“After slapping 25 per cent tariffs on steel and aluminum, U.S. President Donald Trump is now threatening to cripple Canada’s auto industry with tariffs of up to 100 per cent.
In an interview with FOX News that aired on Monday, Trump said Canada has a “very big car industry” and falsely accused the country of having stolen it from the United States.
“They stole it because our people were asleep at the wheel,” he said.
“If we don’t make a deal with Canada, we’re going to put a big tariff on cars. Could be 50 or 100 per cent because we don’t want their cars. We want to make the cars in Detroit.”
As reported by the Detroit Free Press, the CEO of Ford has a very different view:
“Ford CEO Jim Farley, on the eve of traveling to Washington, D.C., to meet with members of Congress on President Donald Trump’s proposed tariffs, did not mince words Tuesday during an investor conference.
While Trump has talked about strengthening the U.S. auto industry, which would be a signature accomplishment, “So far what we’re seeing is a lot of cost and a lot of chaos,” Farley said.
“Let’s be real honest: Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we’ve never seen,” Farley said. “Frankly, it gives free rein to South Korean, Japanese and European companies that are bringing 1.5 million to 2 million vehicles into the U.S. that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.”
Unfortunately, Trump is obsessed with tariffs. He views them as the fix for almost every problem the U.S. faces, and he thus may not be dissuaded by warnings from industry.
More ominously, Trump is also making it clear he intends to weaken Canada’s economy to try and make us into a U.S. State and is openly speaking of withdrawing military protection:
Given all of this information, let’s look at the situation we are facing as Canadians:
- Our steel and aluminum industry faces 25% tariffs from the U.S., and could soon face a cumulative 50% tariff, putting jobs and investment at risk.
- Our auto sector is being targeted for destruction by a U.S. President who wants to see Canadian auto sector jobs and investment shift exclusively to the United States.
- That same U.S. President is openly putting a target on Canada’s back by ‘hinting’ that the U.S. is withdrawing Canada’s military protection.
This is a very difficult situation for Canada, and addressing it requires us to think outside the box.
With that in mind, there is a way for us to address all three of the challenges mentioned above:
Reorient a significant portion of Canadian industry towards military mass production.
Canada needs artillery shells, armoured vehicles, ground-based air defence platforms, small arms, drones, tanks, ships, and more, and we need them in large quantities.
We need to produce as much military equipment domestically as we possibly can, to avoid reliance on foreign countries.
Much of the military equipment we need requires large amounts of steel and aluminum. Building military vehicles, multi-use mobile platforms, and tanks will require auto factories and auto workers. Retooling those factories and training those workers will require investment.
This is something our government needs to be thinking about and planning for.
With that in mind, I have put together a three-step plan for Canada to protect the steel sector, aluminum sector, and auto sector by shifting towards military production. The goal is for the plan to be fully achieved within two years, but to start getting results immediately.
Keep in mind, that the plan mentioned below is intended to be implemented in the case of the United States wrecking the Canadian auto sector and closing up Canadian auto plants. If this does not occur, the government should still start building new plants to produce military equipment and should still support the steel and aluminum sector, but the action taken in that case would not be as drastic.
Here’s the plan:
Phase 1: Strategic integration and assessment (Months 1-6)
The first move should be the establishment of a National Defence-Industrial TaskForce.
This task force would include representatives of the Canadian steel and aluminum sectors, such as Algoma Steel, Stelco, Dofasco, and Alumineire Alouette.
This task force would be focused on identifying how Canada could integrate steel and aluminum into the manufacture of military equipment.
A crown corporation – something with a title like ‘Canadian Military Industries’ would also be formed as the path for the government to direct contracts and develop designs.
Working with industry, the government would then begin prototype development of a range of military products for Canada to produce. Those products could be either designed by Canadian Military Industries (by contracting out to Canadian-owned firms) or licensed from Canadian allies. For example, companies like Rheinmetall in Germany have well-established tank and air defence designs, so Canada could pay to license those designs and build them here.
Initially, the government could focus production on items that are relatively easy to ramp up quickly:
- Light Armored Vehicles & logistics trucks.
- Hulls for frigates and armed patrol boats.
- Drone components.
- Steel-encased ammunition & armoured plating.
A key reason a Crown Corporation is necessary is that the private sector will be wary of taking the lead. After all, we are trying to build up a large Canadian defence industry almost from scratch, while the Canadian steel sector, aluminum sector and auto sector will be desperately trying to retrench and survive an economic assault from the U.S. Without the government taking the lead on kickstarting the industry, it won’t happen.
And so, the government will need to make a serious budget allocation to get things underway.
Here’s what that budget should look like:
- $5 billion to convert factories for military production.
- $4 billion for training workers for the shift to military production.
- $4 billion for research and development and generation of prototypes.
- $2 billion for logistics and improved infrastructure.
To prepare the way for the shift to military production, and to protect jobs in the steel and aluminum sectors, the Canadian government should begin bulk purchases of domestic steel and aluminum. This would also help to stabilize prices.
With the initial groundwork done, it’s time to look at Phase 2.
Phase 2: Factory Conversion and Workforce Integration (Months 6-18)
In Phase 2, the government would start converting auto plants in Ontario into plants to produce military vehicles and drones.
Steel mills would be converted into specialization for military-grade steel to be used in armour plating and ship hulls, among other uses.
Aluminum plants would be converted to produce lighter components for drones, planes, and ships.
Phase 2 would also include large-scale retraining programs. 75,000 workers in the steel, aluminum, and auto sectors would be retrained for shifting to military production. The Canadian government could hire consultants from allied nations – like France, Germany, and the U.K., to help teach best practices. We could also utilize our strong connections with Ukraine to train people on how to produce drones.
In addition to retraining current workers, the government could incentivize Canadian businesses to shift towards the military production sector through a Defence Production Workforce Grant Program. This would subsidize the costs of retraining workers. Furthermore, the government could create a grant and/or tax credit for individuals who enroll in training programs geared toward military production.
The final step in Phase 2 would be to invest in infrastructure such as ports, railways, and rail hubs to make it easier to transport large quantities of military goods. The government would also construct logistics hubs and military testing grounds close to steel & aluminum factories and military production factories.
And now, we move on to the third and final phase.
Phase 3: Prototype Production & Scaling Up (Months 18-24)
With factory retooling, worker training, infrastructure investment, and logistics in place, the final phase would be to start producing equipment at scale.
To start, steel and aluminum prototypes of vehicle armour, ship hulls, and modular aircraft components would be completed and refined.
The retooled automotive sector would deliver final prototypes of logistics trucks, drones, and light armoured vehicles.
The Department of National Defence would then approve these prototypes.
From there, the production of approved prototypes would be scaled up.
By the end of the total 24-month period, the goal would be to produce the following:
3,000 Light Armored Vehicles.
5,000 logistics trucks.
Finished hulls for two Canadian-designed naval patrol ships.
500 advanced long-range armed drones.
1 million steel-encased 155mm artillery shells.
While these numbers may seem big in the context of military production, we could set our sights even higher. After all, Canada produced over 1.5 million vehicles in 2023, and artillery shell production is not that complex, so mass production could be scaled up beyond what many currently consider feasible.
Still, it’s useful to set the numbers out in this fashion to get a sense of how Canada could realistically become a serious military producer by utilizing homegrown labour, homegrown factories, homegrown designs, and homegrown resources.
Assessing the cost:
Achieving this shift to military production in a two-year timespan would not be cheap, but it would be manageable.
Let’s estimate the costs of each part of the plan, and then look at the total:
- Steel & aluminum stockpiling: $500 million
- Strategic assessment: $500 million
- Factory retooling: $5 billion
- Worker retraining: $4 billion
- R&D & prototype creation: $3 billion
- Infrastructure upgrades: $2 billion
Total cost: $15 billion
For comparison, the Parliamentary Budget Officer has noted that Canada (federal and provincial governments) announced $52 billion in subsidies ($31 billion from the federal government & $21 billion from provinces) for the Electric Vehicle industry between October 8, 2020, and April 25, 2024.
That amounts to just under $15 billion per year, compared to the $7.5 billion per year cost of the two-year military production program mentioned above.
The alternative is worse
When we consider taking any kind of action, it is important to consider the consequences not only of that action but also the consequences of inaction.
If the U.S. were to go all out in an attempt to destroy the Canadian auto industry and cripple our steel and aluminum sector, failing to take action would lead to massive job losses.
Further, losing the ability to produce steel and aluminum, and losing the ability to produce vehicles would be not only a severe economic loss but also a strategic vulnerability.
If Canada were to be plunged into war, we would need to be able to produce military equipment using Canadian resources and Canadian workers in Canadian factories. If we lose the steel and aluminum industries, and if the auto sector collapses, we will become even more vulnerable than we already are.
Right now, Canada needs to be doing everything possible to become less vulnerable and instead become more resilient. We may not be able to control what the United States does or what other countries do, but we can control how we respond.
And that is what the plan outlined above is intended to achieve.
I hope that the ideas presented above will help move Canada more towards a position of strength and resilience so we can ensure our nation not only survives, but also thrives in the years, decades, and centuries to come.
Spencer Fernando
Photo – YouTube
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