Vehicle buyers in Canada are trying to beat the price hikes of a trade war, as the government of Liberal Leader Mark Carney prepares to strike back against the latest fusillade of import taxes from the White House.

U.S. President Donald Trump is set to unveil a new round of tariffs in Washington on Wednesday afternoon, followed by levies on automotive products, which are slated to go into effect on Thursday. Canada has already put retaliatory tariffs on a range of U.S. goods, but so far it hasn’t touched one of the biggest categories — American-made autos.

The Canadian government has previously threatened that it might put 25 per cent tariffs on U.S.-made cars and light trucks if Trump escalates his trade actions. Carney hasn’t said yet what the government will do, but he made it clear Tuesday that some form of retaliation will happen: “We will not disadvantage Canadian producers and Canadian workers, relative to American workers.”

Canadian tariffs on U.S. vehicles would have a big impact. The country is by far the largest export market for American automotive factories, taking in 628,743 vehicles from the U.S. last year — four times the number imported by Mexico — worth more than US$23 billion, according to U.S. Commerce Department data.

On some dealers’ lots in Canada, most of the inventory is American-made, including top sellers like Ford Motor Co.’s F-150 pickup.

Canadian buyers are alert to the risk of higher prices, causing auto dealers like Michael Carmichael to alter their strategies. Two weeks ago, he dropped prices at his six automotive dealerships in southwestern Ontario, believing he needed to clear inventory as the effects of a trade war kicked in. Now he’s reversed course. New sales leads have jumped, so he increased prices by around three per cent.

“You’ve got to make hay when the sun shines, but let’s not kid ourselves,” said Carmichael, whose dealerships sell Chevrolet, Honda and other brands. “This dynamic isn’t sustainable, and we very likely could be looking at layoffs in two weeks.”

Canadian consumers bought 185,000 cars and light trucks last month, according to estimates from DesRosiers Automotive Consultants, the best March total since 2018.

Trump has made a series of specific threats against the Canadian auto sector — “we don’t need their cars,” he has said. His plan to implement so-called reciprocal tariffs this week, as well as tariffs specifically on the automotive sector, represents a sea change for vehicle manufacturers, which have enjoyed tariff-free or low-tariff exchange across the Canada-U.S. border for decades.

“Nobody knows which way is up, and why are we even doing this? This makes no sense,” Carmichael said.

Trump’s view is that tariffs will bring more auto manufacturing jobs to the U.S. in the long run. If the U.S. can break the bonds of a North American auto sector that has been tightly integrated for decades, he believes, it will import fewer cars. But if trading partners retaliate, it will likely export fewer, too.

The president said in an interview with NBC News that he “couldn’t care less if they raise prices” in response to tariffs. Consumers in the U.S. rushed to showrooms to try to buy cars before costs go up, with General Motors Co. reporting a 17 per cent jump in U.S. deliveries and other automakers also seeing gains.

A number of research groups have said new vehicle prices will jump by thousands of dollars because of higher production costs. There will be a domino effect through the industry — elevated prices for used cars, higher auto loan delinquencies and layoffs, according to Royal Bank of Canada economists.

“We’re heading into a world of mutually assured destruction if these tariffs are pursued by the U.S. and then Canada, and I’m hopeful there’s an off-ramp because the economic implications are just so, so serious,” said Brian Kingston, chief executive officer of the Canadian Vehicle Manufacturers’ Association, which represents Ford, GM and Stellantis NV in Canada. All three have assembly plants in Ontario, though Ford’s is currently not producing anything.

Manufacturers have been trying to move as many vehicles as they can into local markets to get ahead of trade war escalations, he said.

The average price of a new vehicle in Canada rose to $65,000 in 2024, according to the Canadian Auto Dealers Association, which has urged Canada not to retaliate against the vehicle tariffs.

“What Trump has done has blown up what’s been in place for decades. He’s blown it up in just a few months,” said David Whiston, a Morningstar analyst covering automakers. If the tariffs remain in place for an extended period, GM would likely reduce output from its Oshawa, Ontario plant that produces 152,000 Chevrolet Silverado pickup trucks a year — among other changes.

“We’ve got to get on with the pain so that Americans will understand what is happening,” said Dimitry Anastakis, a business professor at the University of Toronto. He said tariffs on the automotive industry will be so disruptive that it could result in US$50 billion to US$100 billion in stranded investments in Canada and Mexico and a smaller market for U.S. cars in the long run.

Some dealerships haven’t implemented major changes. Ford hasn’t given any guidance about tariffs to Caleb Kwok, a director of sales at the Carson Automotive Group, which owns several dealerships in British Columbia. He hasn’t brought in extra inventory, and so far he hasn’t observed changes in buyer behavior.

“I think people are busy and they might not be paying attention,” Kwok said.

Carmichael just sees a confused landscape for the industry.

“I need more information. I don’t have enough,” Carmichael said, adding that he downloaded the private messaging app Signal in hopes that he gets added to a chat where tariffs get decided.

With assistance from Thomas Seal and Erik Hertzberg

Bloomberg.com