Preserving Canadian jobs and industrial capacity must be priority one.
U.S. President Donald Trump has announced the imposition of a 25% tariff on “all cars that are not made in the United States.”
These tariffs will hit the Canadian auto sector and will go into effect on April 2nd, according to the Executive Order signed by Trump.
Key political figures – including Prime Minister Mark Carney, Conservative Leader Pierre Poilievre, and Ontario Premier Doug Ford – have all denounced the tariffs:
These tariffs are a violation of the Canada-US-Mexico Free Trade Agreement (which Trump signed himself and often bragged about) and represent a clear assault on the Canadian auto sector.
It remains to be seen how the complexity of imposing the tariffs will be handled, given the fact that many auto parts move back and forth over the border multiple times.
But whatever ends up happening, it’s obvious that our country needs a robust response to these tariffs. Donald Trump has made no secret of his intention to weaken the Canadian auto sector as part of his attempt to soften Canada up for annexation, and the imposition of auto tariffs should be viewed through that lens. Trump openly speaks about his desire to stop ‘importing’ Canadian-made vehicles, although the North American auto sector is so deeply integrated that speaking of ‘imports’ and ‘exports’ is unrealistic.
Unfortunately, realism doesn’t seem to hold much sway over the White House, as U.S. economic policy is now being set by someone who irrationally views tariffs as the solution for every economic challenge the U.S. faces.
Thus, we need to respond.
Here are three things we should do:
1 – Act fast to preserve jobs and industrial capacity
The Canadian auto industry generates about 125,000 direct jobs and roughly 450,000 indirect jobs.
The industry also represents a significant portion of Canada’s overall industrial capacity.
The ability to mass produce vehicles is important not only for the consumer economy, but also to ensure there is latent military industrial capacity.
If Canada needs to start mass producing light armoured vehicles, mobile air defence platforms, and even IFVs/tanks, it will be far easier to do so if we have a deep reserve of experienced auto sector workers and factories ready to go.
So, the first step in the response to Donald Trump’s latest tariffs should be to provide direct support to auto sector workers and Canadian-owned auto sector companies throughout the supply chain. Short-term tariff disruptions mustn’t be allowed to turn into the long-term erosion of the auto sector. To ensure that doesn’t happen, the government must buy time for the next phase of the response by protecting jobs now. Yes, this will be expensive. It will mean expanded payments for unemployed workers, and potentially bailouts for Canadian-owned companies in the auto sector supply chain. But if that’s the price we have to pay to protect those jobs and protect our industrial capacity, it’s a price worth paying.
2 – Reorient a portion of the Canadian auto sector towards military production
I recognize that I may seem like a broken record here, as I often call for the expansion of the Canadian Armed Forces, but I think it’s clear that the wisdom of a military build up has been vindicated.
Canada currently finds itself in a deeply vulnerable position, and skimping on our national defence is no longer tenable. Increased military investment is necessary not only from a national security perspective but also from an economic perspective.
If the Canadian auto industry ends up being hit with tariffs, and if those tariffs remain in place for an extended period of time, the government will need to step in. And shifting Canadian auto plants to military production would be a way to strengthen our self-reliance, boost our national defence, and protect auto sector jobs/industrial capacity.
This is something I addressed in more detail in a previous article, which you can read here. An excerpt can also be found below:
“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 Germany is already doing:
“Rheinmetall, Europe’s top ammunition maker, intends to repurpose two of its automotive plants in Germany to mostly make defence equipment, highlighting the impact of an expected surge in spending in the region amid U.S. tensions over the Ukraine war.
Rheinmetall’s (RHMG.DE), opens new tab defence expansion affects its factories in Berlin and Neuss, where the company currently makes automotive parts, a business that has faced challenges as Germany’s carmakers battle high costs and competition from abroad.
Under the plans, which still need to be finalised, both factories would become part of Rheinmetall’s Weapon and Ammunition division and serve as so-called hybrid plants, ensuring some automotive production can still take place.
“Above all, the plants will benefit from the industrial strength that the Rheinmetall Group has as a major military equipment supplier, as well as from the high demand from customers in Germany and worldwide,” the group told Reuters in e-mailed comments.”
The hybrid-plant model is something Canada should emulate. Workers could be rotated from civilian sector production to military production, building up a wide pool of workers who know how to build military equipment. And given how our allies in Europe are eager to build deeper ties to Canada, we would likely find eager partners willing to license military equipment production within our borders.
Of course, it’s not realistic to think that military production could make up for the entire civilian auto industry, but it could certainly reduce the damage to the sector from tariffs, and – most importantly – would help our country become more secure in a dangerous world.
3 – Retaliate
If Donald Trump had his way, the United States would have already imposed massive tariffs on the rest of the world. Trump has repeatedly hyped up his aggressive tariff plans, only to back off when the markets fall. And when he backs off, the markets rise. This public display of opposition to tariffs by the markets is assuredly being mirrored by intense behind-the-scenes lobbying from corporate America.
U.S. public opinion is also generally hostile towards tariffs on Canada & Mexico – the two countries that will be among the hardest hit from sweeping auto sector tariffs.
Fundamentally, Trump’s tariff obsession is unpopular and economically unsound. The idea of replacing income taxes with tariffs is absurd, given that tariff revenue doesn’t even come close to matching income taxes, and given that if tariffs are ‘successful,’ they reduce imports, thus reducing long-term tariff revenue.
Internal U.S. pressure is thus Canada’s best bet in avoiding the long-term imposition of tariffs. But that pressure will only be salient if Canada retaliates. Retaliation sends the message that both sides suffer in a trade war. Yes, Canada takes a hit, but so do businesses and consumers in the U.S. The more of an economic impact they feel from Canadian tariff retaliation, the more pressure will be brought to bear on the Trump Administration to change course.
So, retaliatory tariffs are short-term pain for long-term gain.
They also show strength and resolve.
At a time when the U.S. is led by an administration that admires bullying tactics, Canada must respond to bullies in the most effective way possible: by fighting back.
Canada should impose tariffs on more products from the U.S., and should particularly target products produced in Republican Congressional districts that the party won by narrow margins. That is where economic pressure – and thus political pressure – can be applied most efficiently and effectively.
This situation is far from ideal, but it’s the situation we find ourselves in. The ideas mentioned above can help ensure Canada emerges from this difficult time in as strong a position as possible, given the circumstances.
Spencer Fernando
Photo – YouTube
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