The relative peace that auto makers in Canada have enjoyed on trade issues has come to an abrupt end.
The election of Donald Trump has already halted U.S. participation in the Trans-Pacific Partnership agreement – effectively killing that deal – and a renegotiation of NAFTA is in the cards, pushing trade issues to the top of the agenda.
Every large auto maker that sells in the Canadian market imports vehicles from Mexico – some more than others – so any tariff increases or other changes in the terms of the auto provisions of NAFTA could lead to higher prices for consumers or a halt in shipments of some vehicles.
Even Brexit will have an impact on the market if Britain is excluded from the Canada-EU free-trade agreement.
If you add the NAFTA reopening, TPP and Brexit together, "you have chaos on the trade front," said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.
Trade issues have been on the back burner for most of this century, since the World Trade Organization nullified the 1965 Canada-U.S. Auto Pact in 2000, ending a long battle between Japan-based auto makers and the Canadian units of the Detroit Three over tariff-free access to the Canadian market.
The key dispute in that battle was over the 6.1-per-cent tariff Canada applied to Japanese-made vehicles imported into this country – a levy that did not apply to the Detroit Three. Canada responded to a WTO decision on the tariff by slapping the tariff on all vehicles imported into the country from outside North America by any auto maker.
The tariff is back in play because it was scheduled to be eliminated as part of the TPP, which would have given Japan-based companies the same status as Hyundai Motor Corp. and Kia Motors Co. Ltd. They won tariff-free status under the Canada-South Korea free-trade agreement.
The Japan Automobile Manufacturers Association of Canada has already urged the federal government to resume negotiations with Japan on a bilateral deal.
"If Canada's 6.1-per-cent tariff is applied only to vehicles from Japan, our members and their dealers will be at a distinct disadvantage in the Canadian market," JAMA Canada chairman and Toyota Canada Inc. president Larry Hutchinson said in an e-mail response to questions.
"Moreover, this will send a strong message to auto makers in Japan, as well as to our members here that Canada is prepared to treat some auto makers more favourably than others – a serious issue of equity and balance in Canada's automotive trade policy," Mr. Hutchinson said. "If we are less competitive due to the absence of a trade agreement with Japan, this will have implications across all of our operations in Canada."
Subaru Canada Inc. is one of the companies most affected by the tariff. Almost three-quarters of its 50,000 sales in Canada last year were assembled in Japan, according to data compiled by the Global Automakers of Canada.
"It's not really a level playing field right now," said Ted Lalka, the company's vice-president of product planning and marketing. "With TPP appearing to be a dead issue, the question is: 'What are the alternatives?' It could be there's an opportunity now for a bilateral agreement between Canada and Japan."
Subaru competes mainly against other Japan-based auto makers and to a lesser degree with the South Korea-based companies and Volkswagen AG, Mr. Lalka said in an interview.
An expansion of the company's only assembly plant outside of Japan, which is located in Lafayette, Ind., means the auto maker is now importing its Legacy, Outback and Impreza models from the United States, he said.
"If we were looking at this from a U.S. standpoint, we appear to be the poster child for what Trump is trying to do and that is create jobs in North America or specifically in the United States," he said.
Subaru is probably immune from Mr. Trump's Twitter tirades for the moment because it has no operations in Mexico.
For several large auto makers that sell vehicles in Canada, however, the potential of a renegotiation of NAFTA leading to tariffs or other restrictions on Mexico-made vehicles looms large, even though there has been no official word yet from the U.S. government calling for the trade deal to be reopened.
If the NAFTA renegotiation includes new content rules requiring that a certain percentage of parts come from U.S. suppliers, many vehicles now sold in Canada will not qualify for tariff-free entry.
Canada could insist that it be granted similar Canadian content rules. It is also unlikely that Canada will leave its own borders open to duty-free access for vehicles from Mexico if the U.S. restricts access.
About 9 per cent of the 1.95 million vehicles sold in Canada last year were imported from Mexico by auto makers as diverse as Kia and Fiat Chrysler Automobiles NV (FCA). The vehicles ranged in size from the subcompact Fiesta sold by Ford Motor Co. to FCA Canada's heavy-duty 2500 and 3500 Ram full-sized pickups.
That number is likely to grow as plants now under construction in Mexico come on line and such auto makers as Audi AG, BMW AG and Mercedes-Benz begin shipping vehicles to Canada from Mexico.
The companies that now import from Japan that would be most affected by a change in tariffs or other restrictions, are Volkswagen Canada Inc., Mazda Canada Inc. and Nissan Canada Inc.
Volkswagen imported almost 41,000 vehicles from Mexico last year or 68 per cent of its sales.
Mazda's best-selling vehicle in Canada, the Mazda3 compact, is assembled in Salamanca, Mexico, at a plant that produced about 32 per cent of the vehicles the auto maker sold in Canada in 2016.
Nissan's Mexico plants produce the Micra, Sentra and Versa cars and the NV200 van, representing about 25 per cent of Nissan's sales in Canada.
None of the companies would comment when asked what, if anything, they are urging the federal government to do to protect their interests in Canada in negotiations on a new continental free-trade agreement.
General Motors of Canada Ltd. and FCA Canada would not reveal the number of vehicles they import from Mexico. Chevrolet Trax crossovers sold in Canada are imported from Mexico, as is the hatchback version of the Chevrolet Cruze compact car.
Price stickers in the windows of some crew cab versions of the GMC Sierra pickup trucks on the lots of GM Canada dealers show that they were assembled at a GM factory in Silao, Mexico.
GM Canada imported about 3 per cent of its vehicles from Mexico last year, while Ford Motor Co. of Canada Ltd. brought in about 18,500 cars or about 6 per cent of its sales.
The Mexico-assembled Dodge Journey crossover and the Fiat 500, a subcompact car, made up about 8 per cent of FCA's sales in Canada last year.
FCA is in the midst of major restructuring of its North American manufacturing footprint that will lead to increased output of pickup trucks. That includes retooling a plant in Warren, Mich., to enable it to make the heavy-duty pickups now made in Mexico and imported into the U.S. and Canadian markets.
But the upheaval that would be caused by a change in NAFTA "has got monumental consequences to the industry over all," FCA chairman Sergio Marchionne said last month.
The final piece of the trade puzzle in the Canadian market is the Canada-EU trade deal.
The 6.1-per-cent duty on vehicles made in Europe will be eliminated over seven years.
If Britain and the EU can't reach a deal or if Canada and Britain don't sign a bilateral trade agreement, vehicles assembled in Britain by Jaguar and Land Rover will still face the tariff while competing vehicles sold by German-based auto makers will enter Canada tariff-free.