“As the President has made clear, Canada and other trading partners cannot keep freeriding off of the United States, and the Trump administration will continue to put Americans and America First,” Desai said.
The auto industry was among the first Trump targeted with tariffs when he began his second term, imposing a 25 percent across-the-board duty on autos and auto parts on national security grounds early in 2025. They were also one of the first industries to push back. The “Big Three” U.S. automakers — Ford, General Motors and Stellantis, which owns Jeep and Chrysler — were able to secure exemptions early in the process for automobiles and parts that were made in North America.
Those exemptions were critical, auto lobbyists argued, because parts and vehicles regularly move across borders between Canada, Mexico and the U.S., sometimes several times. Under the terms of the 1994 North American Free Trade Agreement and its Trump 1.0 replacement, the U.S.-Mexico-Canada Agreement, most of that commerce was tariff-free. That integrated supply chain, auto companies have argued, has allowed North American cars to compete with overseas competitors, while also helping attract investments from major Asian manufacturers, from Toyota plants in Kentucky to Hyundai plants in Alabama.
But as Trump secured deals with other major auto manufacturing countries, like Korea and Japan, the North American auto industry soon found itself at a disadvantage, sometimes paying a higher tariff on vehicles than those that were built entirely in Asia and shipped across the Pacific.
The Trump administration was on the verge of a trade deal with Canada last week that could have lowered tariffs on Canadian automobiles to as low as 7 percent — a move that U.S. car companies were prepared to embrace, even as they continued to push for tariffs between the two countries to be eliminated outright. One of the industry officials called it a “welcome improvement” that would have removed what the industry sees as a competitive disadvantage vis-a-vis Asian manufacturers.
That came to a crushing halt Friday night when talks between Canada and the U.S. fell apart. Trump’s subsequent threat to raise tariffs on automobiles and auto parts to 50 percent on New Year’s Day added additional pressure. In the span of 72 hours, the industry went from cautiously optimistic to staring down what it described as an existential threat to North America’s competitiveness in the auto industry.
Even the group that would ostensibly benefit from a policy that brings more auto manufacturing back to the U.S. — the United Auto Workers Union — quickly panned the escalation.
“The UAW rejects any escalation on Canada, a country with strong unions and labor standards,” the union’s president, Shawn Fain, said in a statement. “If we’re going to increase tariffs anywhere, it should be on countries where automakers continue to offshore jobs because they can pay workers $3 an hour, force them to work in unsafe conditions, and crack down on independent unions.”
