Planned U.S. tariffs on Canadian auto imports could force Japanese automakers Toyota and Honda to close production lines in Canada, analysts said on Monday.
The proposed doubling of the tariff to 50% effective January 1 would target the two manufacturers, which together account for more than three-quarters of the roughly 1.2 million vehicles produced annually in Canada. The broader Canadian auto sector supports about 427,000 jobs, according to industry estimates.
Julie Boote, analyst at Pelham Smithers, described the tariffs as capable of destroying the Canadian auto industry if implemented. The move comes as Toyota and Honda face competitive pressure in Europe, Southeast Asia and Latin America from low-cost electric vehicles produced by Chinese rivals such as BYD.
The U.S. remains the most important market for both automakers, given restrictions on Chinese competitors in that market. Barclays estimates that nearly a quarter of Honda models sold in the U.S. last year were produced in Canada, alongside 17% of Toyota vehicles. German automakers do not operate plants in Canada but exported about 35,000 vehicles from the U.S. to Canada in 2023, according to Germany’s VDA industry association, leaving them exposed to potential Canadian retaliation.
The tariffs are part of broader U.S. protectionist trade policy reshaping the global auto industry. Toyota is responding by expanding U.S. production, planning to invest up to $10 billion in the U.S. over five years, including $3.6 billion for a new plant in Texas. The company reported that U.S. tariffs cost it the equivalent of about €7.6 billion in its last fiscal year.
Honda, already struggling with thin margins, faces additional uncertainty. A senior executive recently stated that construction of an eighth North American plant hinges on the renewal of the U.S.-Mexico-Canada Agreement (USMCA). President Donald Trump opposed an automatic extension of the pact on July 1, making annual reviews necessary.
Escalating trade tensions between the U.S. and Canada raise reciprocal risks for automakers operating across both markets.
