'Everyone is confused': Trump auto tariffs spark confusion, concern in car country
Uncertainty reigned in North America's integrated auto industry once U.S. border taxes began
Confusion and uncertainty reigned in the deeply integrated North American auto industry on Thursday, the day the Trump administration hit imports with a hodgepodge of tariffs.
"Everyone is confused," said Peter Frise, an automotive expert at the University of Windsor.
Faced with few new details from the White House, industry insiders on both sides of the border were struggling to understand how, exactly, the U.S. government will apply tariffs to the truckloads of vehicles and parts crossing the border every day.
"It's that unknown, that uncertainty that is kind of gripping the industry at this point," said Jeff Rightmer, an automotive supply chain expert at Wayne State University in Detroit.
The answers the industry seeks will be highly consequential, as it helps determine how much tariffs will actually cost manufacturers — and how both autoworkers and consumers will be affected.
At 12:01 a.m. on Thursday, U.S. President Donald Trump's 25 per cent tariffs on foreign vehicles kicked in. Next month, the same tariff will be applied to car parts. The president has said the tariffs are intended to force companies to invest in U.S. manufacturing — something industry experts and economists have cast doubt upon.
But the White House has said tariffs will only apply to the value of non-U.S. content in vehicles and parts imported under the existing Canada-United States-Mexico Agreement (CUSMA).
The confusion stems from the lack of clarity on how the administration will determine the U.S. content in those imports. In other words, the value of their American components.
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The North American auto industry relies on intricate, interconnected supply chains that stretch from Canada to Mexico.
"The problem becomes, you have certain parts that could go back and forth across the border seven or eight times" before final assembly, Rightmer said. "Is that tariff going to be applied each time it comes back and forth?
"Those are the things that really start to make this whole thing complicated," he said.
Prime Minister Mark Carney instituting retaliatory tariffs on Thursday means parts and vehicles will face levies coming into Canada, too.
It's a tremendously complicated bookkeeping exercise...- Peter Frise, UWindsor auto expert
It's also unclear how granular the U.S. content provisions will be — whether the administration gets as deep as raw materials, or whether the tariff will apply to parts only once they've reached a certain level of assembly.
"It's a tremendously complicated bookkeeping exercise to figure out where a part came from and what steps it went through in getting to the final customer, and at what steps, what value was added to it," Frise said.
He used a car fender to illustrate the complexity. It begins as raw steel, gets stamped into a fender, assembled into a vehicle, then painted, he said. The vehicle is then shipped to a dealership.
"Well, where did the fender come from? Where did the steel come from when it was stamped into a fender?" he said.
Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers' Association, said CUSMA included rules of origin, but the administration has not said whether it will be using those rules yet.
"Given that vehicles have thousands of parts and components, you could imagine the complexity associated with trying to draft rules that would provide guidance to industry on this issue," he said.
The process by which car companies will certify their U.S. content is also unclear, according to Kingston.
The administration in the Federal Register has said companies importing vehicles under CUSMA "may submit documentation to the Secretary [of Commerce] identifying the amount of U.S. content in each model imported into the United States."
Kingston said that's good for Canada, because Canadian vehicles have high volumes of U.S. parts.
"However, there's a question mark around when you could apply for a lower tariff and be approved, because in the Federal Registrar notice, it indicates that companies or importers would have to submit documentation directly to the secretary that identifies the amount of U.S. content in each vehicle, and that would then need to be approved by the secretary," he added.
"So it is unclear what that process is going to look like and most importantly, how long that's going to take."
Despite the uncertainty, tariffs are already underway on fully assembled vehicles, such as the Pacifica minivans that Stellantis assembles in Windsor. Kingston said he was unsure whether the company would be forced to swallow the 25 per cent tariff costs until the Trump administration establishes a U.S. content certification process.
"Questions remain and that's the challenge," he said. "We just simply don't have certainty around how all of this is going to roll out."
Parts tariffs kick in May 3, but the administration has said parts that comply with CUSMA "will remain tariff-free until the Secretary of Commerce, in consultation with U.S. Customs and Border Protection (CBP), establishes a process to apply tariffs to their non-U.S. content."
Kingston said the uncertainty is bad for business. "It makes it really difficult to move forward with projects and investments when you have no clarity on what the ultimate trade environment is going to look like," he said.
"And given that we've seen the U.S. administration make multiple changes to a range of tariffs, plus ongoing threats of reciprocal tariffs [...] it is stifling investment and it stifles production decisions."
Already, Stellantis has announced it will pause production for two weeks at its Windsor plant in light of Trump's trade war. The company said Thursday it "continues to assess the effects" of the U.S. tariffs and "will continue to engage with the U.S. Administration on these policy changes."
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Kingston said more layoffs could be on the horizon. "We could see that across the industry, not just in Canada, in the United States and Mexico."
Rightmer and Frise echoed that statement. "I think what's going to happen is what's already happening, which is the companies will shut the factories down," Frise said. "They can't eat the cost because this industry typically has a profit margin of five, six, seven, eight per cent, so a 25 per cent tariff is more than the profit margin."
Frise and Rightmer also said smaller parts producers have even thinner margins – and if assembly plants lack parts, they can't assemble vehicles.
"I just don't have that many answers and I don't think anyone will," Frise said of the new tariff regime. "You know, people may say they understand it, but I don't think they do because I don't think that the U.S. government understands what they're trying to do."
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