CIBC says US auto rates could cut Canadian auto production by nearly 1 million

According to a recent CIBC report, the number of cars manufactured in Canada could fall by as much as 900,000 units a year if the United States hit that country with a 25% car rate.

Royce Mendes, Senior Economist at CIBC Capital Markets, the latest badyst to sound the alarm about the impact the Canadian economy could see on the recent tariff threat of US President Donald Trump

"It was not so long ago, it was commonplace to wonder if President Trump But, until here, he has generally found ways to stay true to his word, and that's what it's all about. is exactly what concerns car rates, "said Mendes in a note released Wednesday.

Trump and his administration have repeatedly threatened Canada with imposing a 25 percent duty on cars imported from Canada, as well as a 10 percent tariff on auto parts after deciding to do so. To exempt Canada from high steel and aluminum tariffs since June 1965. 02] The Canadian government has responded by imposing tariffs on metals from the United States, as well as on a long list of other goods beginning this month, which intensified the trade war between the two neighbors.

Mendes estimates that if the United States imposed a 25 per cent duty on cars imported from Canada, it would result in a reduction of 900,000 units per year in the country 's automobile production. But if an American car rate were imposed on all imported cars, not just in Canada, production in the country could drop by more than 400,000 cars a year.

Canada produces more than two million new vehicles a year, according to Statistics Canada. This suggests that the country's auto production would fall by half if only Canada was covered by a US car rate, according to CIBC.

"After also taking into account a tariff of 10% on coins [auto] and We estimate that the reduction in Canadian production would require less foreign inputs and we estimate that the direct reduction of GDP [1,959%] is respectively 1% and 0.5% for each scenario, "said Mendes

a weaker Canadian dollar that would result, which would help mitigate the shock, but a breach of confidence could seriously aggravate the situation. "

Job Losses North of the Border

In terms of the number of jobs affected by the fall In Canadian auto production, Mendes said that it was not possible He had not quantified the job losses because he was only looking at the direct impact on production.

He adds however that there could be a "drag-and-drop" effect over time, spend less and cause However, last month, the Bank TD warned that Trump's auto rates could cost 160,000 jobs in Canada, especially if Canada responds.

Mendes said that even though it is tempting to suggest that Canada could increase its revenues. "Canada produces only a handful of models for the hundreds of choices consumers have become accustomed to," he said. . "Unless you believe that someone looking to buy a flashy top convertible sports car would be happy to leave their local car dealership with the keys of a minivan, this is not a feasible solution to the potential problem at hand. "

added that US consumers were a little better prepared to deal with import tariffs on cars, because cars manufactured in the United States accounted for nearly 80 percent of the total cars sold in the United States. country last year. In comparison, only 10% of cars manufactured in Canada last year were purchased by Canadians.

Meanwhile, Douglas Porter, chief economist at BMO Financial Group, said that there was no way to clarify what was going to happen. "

" In the end, it's the companies that will decide whether or not to keep open factories, so that production will move in large discrete pieces, "he said. however, agree with Mendes that the rates could send Ontario, the heart of Canada's auto production, into or near a recession.

"Given the variation in the volume of US imports resulting from the tariff, Canadian automobile production could be reduced somewhere in the 600,000 to [the] one million units," Porter said. 19659002] "Assuming a similar impact across the spare parts supply chain, this would directly reduce Canada's GDP by 0.3 to 0.6 percentage points, and could endanger at least 40,000 industrial jobs. . "