The Canadian government, companies in the auto sector and a leading U.S. business group have condemned the Trump administration for launching an investigation into whether vehicles imported from Canada, Mexico and other countries represent a security threat to the United States.
The move by the U.S. government targets autos imported from all countries, noting that vehicles made outside the United States captured almost half the U.S. market last year.
Read More: Trump aims at NAFTA allies with imported-vehicle tariffs
The investigation, using legislation from the 1960s that allows the United States to impose tariffs if national security is under threat, has also been used to target imports of steel and aluminum and could lead to tariffs of 25 per cent on vehicles and auto parts shipments to the United States.
If put in place, such tariffs would cause a substantial increase in the costs of the approximately 1.7 million vehicles and the more than $17-billion worth of parts shipped out of Canada to the United States annually.
“It’s absurd to think that Canada in any way could pose a national security threat to the United States,” Minister of Foreign Affairs Chrystia Freeland said in Ottawa, noting that Canada will resist auto tariffs as it has fought 25 per cent tariffs on steel and 10 per cent levies on aluminum entering the United States from Canada. Canada has an exemption from those tariffs that expires next Friday.
Prime Minister Justin Trudeau told reporters he believes the U.S. threat is related to negotiations to transform the North American free-trade agreement, where Canada and Mexico have forced U.S. negotiators to drop some automotive demands and reduce others. But the talks are deadlocked in part on Mexico’s refusal to agree a certain percentage of vehicles be made in high-wage regions in order to qualify for duty-free shipment within North America.
“Obviously trying to find what would be the link between the national security of the United States and cars that would be made in Ontario, it is starting to be less and less relevant or justified in terms of logic and intellectual rigour,” Mr. Trudeau said with an audible sigh.
Linda Hasenfratz, chief executive officer of Linamar Corp., Canada’s second-largest auto parts company by revenue, said the suggestion that vehicles from Canada and Mexico are a security threat is “ludicrous.”
Tariffs will add cost, which will drive up prices, reduce demand and potentially lead to a recession, Ms. Hasenfratz said in an e-mailed statement.
“President [Donald] Trump needs to stop playing games and start supporting the American economy with positive action.”
Shares of Linamar, and Canada’s other large publicly traded auto-parts makers, Magna International Inc. and Martinrea International Inc., fell on the news.
A sport utility vehicle Magna assembles for Mercedes-Benz in Austria would be subject to the tariff.
Five auto makers – two based in Japan, two in Detroit and one in Italy – assembled 2.18 million vehicles in Canada last year. They exported about 85 per cent of those to the United States, although the number varies by company.
Toyota Motor Corp. which is the largest vehicle assembler by volume in Canada, said the threat of tariffs has not changed its plans to invest $1.4-billion in assembly plants in Cambridge, Ont. and Woodstock, Ont.
Toyota has invested more than US$23-billion in the United States, so a determination that its vehicles harm U.S. national security seems “implausible,” a spokeswoman said in an e-mail from the company’s North American headquarters in Plano, Tex.
There was no comment from the Detroit-based companies Ford Motor Co. and General Motors Co. or from Fiat Chrysler Automobiles NV or their Canadian organization, the Canadian Vehicle Manufacturers Association.
But such companies, which have large assembly operations in Mexico and Canada, will be harmed if their imports from the two countries are subject to tariffs, said Flavio Volpe, president of the Automotive Parts Manufacturers Association of Canada.
“Section 232 tariffs on light vehicles made in Canada are going to punish American companies, American suppliers and American customers,” Mr. Volpe said. “That’s not smart.”
The U.S. Chamber of Commerce blasted the move, saying the President’s national security powers were being “abused” purely to ratchet up the pressure at the bargaining table.
“The administration has already signalled its true objective is to leverage this tariff threat in trade negotiations with Mexico, Canada, Japan, the European Union, and South Korea,” chamber President Thomas Donohue said in a statement.
Daniel Ujczo, an Ohio-based international trade lawyer at the firm Dickinson Wright, said the tariff threat is purely about turning up the pressure in NAFTA talks and pleasing Mr. Trump’s protectionist supporters.
“The investigation into autos is pure pressure and politics. While the administration has discussed this since the 2016 campaign, it was launched only after it became clear NAFTA was at an impasse and the President was facing strong criticisms from his base on China,” Mr. Ujczo said.
With files from Daniel Leblanc
Adrian Morrow