Hurry up and buy? How Trump’s auto tariffs could affect car prices in Canada

Click to play video: 'Freeland vows ‘equally clear and firm’ repose to Trump auto tariffs'
Freeland vows ‘equally clear and firm’ repose to Trump auto tariffs
In an appearance before the House of Commons trade committee on Tuesday, Foreign Affairs Minister Chrystia Freeland vowed Canada is making detailed preparations in the event Donald Trump imposes steep new tariffs on cars, which she said would be equal in strength to those imposed in response to steel and aluminum tariffs – Jun 19, 2018

In an escalating war of tariffs, tirades and tweets, U.S. President Donald Trump is now dangling the prospect of steep duties on all auto imports from America’s trade partners.

The U.S. president has floated the idea of imposing tariffs of 25 per cent on all vehicles crossing the border into the U.S. In Canada, which sells more than 80 per cent of its motor-vehicle production south of the border, the move would have a devastating impact on the auto industry.

READ MORE: Chances that Trump will impose auto tariffs ‘reasonably good:’ U.S. trade expert

But what would the tariffs do to car prices in Canada? And if you’re thinking of buying a car, should you hurry up and before the White House strikes again?

Global News asked three auto industry experts to weigh in.

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The impact on new-vehicle prices would depend on how Canada retaliates

A 25 per cent tariff on auto imports would add US$6,400 in extra costs for a US$30,000 vehicle in the U.S., according to a report by U.S. consulting firm Trade Partnership Worldwide.

Under current NAFTA rules, a passenger vehicle travels tariff-free across North America as long as at least 62.5 per cent of it is made in Mexico, the U.S. or Canada.

Canada charges a 6.1 per cent surtax on imported passenger vehicles that aren’t exempt from tariffs, while the U.S. charges 2.5 per cent.

In Canada, where the average transaction value for a new car is worth $40,000, a 25 per cent import tariff would translate into a cost increase of about $5,000, as the tariff would apply to only about half what makes up the final market price, according to Dennis DesRosiers, president of DesRosiers Automotive Consultants.

The latter scenario, though, would only come true if Canada were to respond to U.S. auto tariffs by slapping identical duties on U.S. car exports into Canada.

DesRosiers believes that’s scenario is unlikely.

READ MORE: Canada preparing ‘detailed’ response to potential Trump auto tariffs, Freeland says

While Canada would “almost for certain” retaliate, DesRosiers thinks the chance Canada would punish its own car-shoppers with symmetrical auto tariffs is slim. Instead, Ottawa would probably try to hit Washington where it hurts, by targeting agricultural products exported by key Republican states.

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A 25 per cent tariff on U.S. auto imports would still result in higher car prices for Canadians, as even vehicles made in Canada are made of parts that usually criss-cross the border several times before final assembly. The tariff would apply to those components as well, DesRosiers said.

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But even accounting for the added paperwork involved in processing a surtax at every border-crossing, the cost increase for new vehicles in Canada would be “marginal” in the absence of Canadian countermeasures targeting auto imports from the U.S., according to DesRosiers.

WATCH: U.S. Tariffs getting people to buy Canadian

Click to play video: 'U.S. Tariffs getting people to buy Canadian'
U.S. Tariffs getting people to buy Canadian

While Americans who are thinking about buying a new vehicle had better rush to buy now, there’s little reason for Canadians to rush their purchase, DesRosiers told Global News.

Not everyone, though, is as confident that Canadian tire-kickers have little to worry about.

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READ MORE: European Union says retaliatory tariffs on U.S. to kick in Friday

Brian Murphy, vice-president of research and editorial with Canadian Black Book, said anyone considering a new-vehicle purchase “may want to buy sooner rather than later.”

David Adams, president of Global Automakers of Canada, offered another take on the buy-now argument.

After years of record sales, Canadians seem to have lost some of their appetite for shiny new four-wheelers. Sales activity has come in slightly below year-ago levels for the past three months, Adams noted.

“Consumers are probably more likely to get a better deal now,” he said.

And even if the dreaded Trump auto tariffs do not become reality, more belligerent rhetoric on trade from Washington could cause the Canadian dollar to fall further, pushing up car prices across the board, he added.

WATCH: Freeland vows ‘equally clear and firm’ repose to Trump auto tariffs

Click to play video: 'Freeland vows ‘equally clear and firm’ repose to Trump auto tariffs'
Freeland vows ‘equally clear and firm’ repose to Trump auto tariffs

Used vehicles could see price swings, too

U.S. auto tariffs could also have a significant impact on used vehicle prices in Canada, Murphy said.

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That’s because Canada tends to export significant volumes of pre-owned cars and trucks to the U.S. whenever the Canadian dollar weakens. Around 300,000 used vehicles have moved south of the border each year since the loonie hit 80 U.S. cents in 2015, according to Murphy.

But a 25 per cent tax would erase that profit-making opportunity of used-vehicle dealers, leaving the Canadian market with an extra supply of vehicles that would push down prices “quite a bit,” Murphy said.

This effect, on the other hand, could later fade as a result of increased domestic demand for used vehicles should Canada impose its own 25 per cent tariff on U.S. auto imports, he added.

WATCH: Freeland confident 160,000 auto sector jobs will be protected from U.S. tariffs

Click to play video: 'Freeland confident 160,000 auto sector jobs will be protected from U.S. tariffs'
Freeland confident 160,000 auto sector jobs will be protected from U.S. tariffs

The tariffs could take effect as early as this fall

Trump is invoking the same national security provision he used for the steel and aluminum tariffs to explore the possibility of raising duties on vehicle and auto-part imports. The U.S. Department of Commerce began a national security investigation on the matter on May 23 and has until mid-February 2019 to present its findings and recommendations.

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However, some believe the results could come much sooner if the White House wants to use the auto tariffs to rally support for the president’s base ahead of the upcoming U.S. midterm elections in November.

READ MORE: Donald Trump claims Canadians are ‘smuggling’ shoes back to Canada because tariffs are so high

Patriotic car-shopping won’t be easy

Trump’s tariffs on steel and aluminum and Ottawa’s $16.6 billion worth of retaliatory countermeasures on a variety of U.S. products have prompted calls on Canadian consumers to boycott made-in-American products.

But buying Canadian is a trickier proposition when it comes to car shopping. While some models are manufactured exclusively in the U.S., North American auto supply chains are so integrated that even those vehicles likely contain a variety of components made in Canada, DesRosiers said.

The thing about trade wars, Murphy said, is that, ultimately, “everybody is going to lose.”

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