Tariff Impact on Auto Industry: Cost Increases and Strategic Shifts Ahead
The new tariffs imposed by President Trump are expected to have significant economic impacts on the auto industry, especially for fleet costs, vehicle availability, and strategy decisions through 2026. EY experts predict rising consumer prices, delayed electric vehicle (EV) investments, and supply chain restructuring as major outcomes of the tariff policy. Fleets may face staggered cost increases, with vehicles containing high imported content or luxury models being affected sooner. As inventory depletes, OEMs will need to decide whether to absorb costs or restructure. The tariffs are also expected to contribute to a 1% drag on U.S. GDP in 2025 and could delay EV adoption, with some OEMs reconsidering EV investments. EY advises companies to proactively plan by modeling cost scenarios and aligning supply chain and financial strategies to mitigate the effects of the tariffs.
Check out the Fleet Insights Fleet OEM Tariff Impact Hub
Canada's Automotive Trade Balance with the U.S. in 2024: A Mixed Picture
In 2024, Canada remained a net importer in the automotive sector, with exports totaling $82.21 billion and imports reaching $142.74 billion. While the U.S. accounted for 95% of Canada's automotive exports and 57% of imports, Canada's trade balance with the U.S. showed a surplus in light vehicles, exporting $43.82 billion and importing $35.49 billion, resulting in an $8.33 billion surplus for light vehicles. However, Canada faced a significant trade deficit with the U.S. in medium and heavy-duty trucks, engines, and automotive parts, contributing to an overall negative automotive trade balance of over $3 billion in 2024.
Canada Strikes Back with Auto Tariffs in Response to U.S. Trade Measures
On April 9, Canada implemented retaliatory tariffs of up to 25% on fully assembled U.S.-made passenger vehicles, in response to U.S. auto tariffs imposed by President Trump a week earlier. These tariffs aim to pressure Washington to lift its levies and primarily target vehicles not compliant with the USMCA, although even USMCA-compliant vehicles are subject to a 21.25% default tariff rate based on assumed non-Canadian/Mexican parts content. Importers can claim higher regional content to reduce duties, subject to verification. Unlike the U.S. tariffs, Canada’s surtax excludes auto parts, but it is still expected to increase vehicle prices and impact automakers. The move follows two previous rounds of countertariffs and underscores Canada’s stance against what it deems unfair trade practices. Proceeds—estimated at $8 billion annually—will support affected autoworkers and companies, and a new incentive framework for Canadian vehicle production is in development.