Auto tariffs fundamentally transform the Canadian auto market in ways that impact consumers, manufacturers, and workers alike. As global trade tensions are smoldering hotter and protectionist policies are becoming trendy, car consumers in Canada have to deal with increased prices, extended waiting times, and changing market conditions. Here are 20 FAQs answered about how auto tariffs impact Canadian car buyers:
What Are Auto Tariffs and Why Do They Matter?
Auto tariffs are levied on imported vehicles and automobile components, significantly affecting the cost and supply chain character of vehicles in Canada. Traditionally set as a percentage of the vehicle’s worth, tariffs can range from 2.5% to 25%, depending on the trade agreement and country of origin. The U.S., Canada’s largest automobile trade partner, has threatened 25% tariffs on Canadian auto exports during periods of trade tension. Canada sold $32.2 billion of vehicles to the U.S. alone in 2022. A tariff of even 10% would mean billions more in added expense. These added expenses are generally passed on to buyers, raising the price of cars and reducing demand. Tariffs also discourage the efficiency of cross-border trade, which impacts employment and economic stability.
How do U.S. Tariffs Impact Canadian Car Prices?
U.S. tariffs directly raise the cost of Canadian-assembled vehicles and imported components, and those costs get passed on to sticker prices paid by Canadian consumers. For instance, when the U.S. imposed tariffs on steel and aluminum in 2018, Canadian automakers paid 6-10% more to produce. Because over 60% of the value of a car is imported parts, even a 5% tariff on parts will drive up the cost of cars by thousands. Research done by the Canadian Automotive Dealers Association (CADA) found that a 25% tariff on imported vehicles will push the average cost of a vehicle in Canada by $5,000 to $7,000, as estimated by the Canadian Automotive Dealers Association. As the average price of a new vehicle in Canada is already over $45,000 (as of 2023), tariffs significantly affect affordability.
Will Buying a Car in Canada Become More Expensive?
Yes, tariffs add to the cost basis along the auto supply chain, pushing prices higher for Canadian consumers. Automotive inflation rose 6.9% between 2021 and 2023, reports Statistics Canada, fueled by uncertainty in trade policy. If a tariff of 10% were added to a $40,000 automobile, the vehicle would increase by $4,000 before dealer fees and taxes. This doesn’t even consider the compounding effect of rising lending rates and reduced competition, raising prices. Furthermore, Canadian car consumers are particularly vulnerable since Canada imports over 75% of its vehicles. Tariff-induced higher costs are almost inevitably passed on to final consumers, especially in an import-surplus market.
Which Car Companies Are Most Hurt by Tariffs?
Firms that rely heavily on cross-border manufacturing and imports, such as Toyota, Honda, BMW, and Volkswagen, are the most susceptible to tariffs. Toyota Canada imports many models from U.S. and Japanese plants, and a 25% tariff on those imports would drive up prices substantially. Toyota exported over 200,000 units in Canada for 2023; many have U.S.-assembled components. BMW exported, and Mercedes-Benz imported luxury autos from Europe, which already have tolls paid on them under WTO rules (up to 10%), and further tariff increases from a U.S.-Canada trade war would further cut margins and drive up prices paid by customers. In addition, domestically branded U.S.-made brands like GM and Ford source components from abroad and are, therefore, indirectly exposed to component tariffs.
Do Tariffs Have Different Effects on New and Used Cars?
Yes, tariffs primarily impact new cars because they directly affect imported vehicles and new car parts. However, the used car sector is also not exempt. As new vehicle prices increase due to tariffs, consumer demand shifts to used cars, increasing their market value. According to AutoTrader statistics, the prices of used vehicles in Canada increased by 34% between 2021 and 2023, partially driven by supply chain disruptions and inflation. If tariffs tighten the supply of new vehicles, the trend will likely continue. Beyond that, repair parts used to maintain used vehicles on the road are often imported from abroad. Tariffs on repair parts can drive up the cost of repairs, eroding the affordability advantage of used vehicles and pinching consumers from both sides.
How Do Tariffs Impact Lease Agreements?
Tariffs increase the underlying price of cars, which has the initial effect of driving up lease payments. Leasing companies calculate depreciation and residual value based on the MSRP of the vehicle, which is inflated due to tariff-included costs. For instance, if the increase in tariffs increases the MSRP of a $40,000 vehicle by 10% to a new MSRP of $44,000 and the three-year lease is used as an example, the increased cost would amount to an extra $50 to $100 per month. Furthermore, with higher prices, residual values could be more unpredictable, creating more financial risk for leasing companies. This risk is normally covered by raising interest rates on leases, also known as the money factor. Because tariffs disrupt pricing models, leasing is less desirable and less within reach for the masses.
Are Electric Vehicles Affected by Auto Tariffs?
Electric vehicles (EVs) are particularly vulnerable to tariffs due to their dependence on foreign-sourced components like lithium-ion batteries, semiconductors, and rare earth materials. Over 60% of an EV’s value comprises its battery, most of which originates in Asia. Adding a tariff rate of 10% to these materials would increase the cost of an EV by anywhere from $3,000 to $5,000. Tesla even exported some units from the U.S. to Canada so that Canadians would pay a premium in a trade war. Government subsidies, like Canada’s ZEV rebate program worth up to $5,000, can even be negated by tariffs, making EVs unaffordable and reducing sales. In an industry where EVs are predicted to represent 20% of new car sales by 2025, tariffs would severely delay the process.
Will I Save Money by Importing a Car Myself?
Importing a car personally sometimes avoids dealer markups, but tariffs and regulatory compliance fees often eliminate any hypothetical cost savings. For example, purchasing a vehicle from the United States may be cheaper initially, but consumers are charged a 6.1% import charge unless the vehicle is North America-made under the USMCA. Inspections and compliance are needed to make it Canadian-compliant and currency exchange fees exist. The Registrar of Imported Vehicles (RIV) program fees add approximately $300, along with mandated compliance work. In 2023, over 38,000 vehicles were imported into Canada by individuals, indicating that the cost-benefit equation has worsened. Ultimately, for most consumers, the savings rarely outweigh the logistical and financial burdens.
How Do Tariffs Affect Canadian Car Dealerships?
Car dealerships operate on slim margins, often earning more from service and financing than the vehicles. Tariffs disrupt this balance by reducing supply, increasing wholesale prices, and compelling dealerships to pass costs on to consumers. A 2022 CADA report estimated that a 25% tariff on vehicles and parts would reduce dealership sales volume by 10-15%. Inventory levels have already been varying due to pandemic-related supply chain disruptions, and tariffs compound these issues. Reduced vehicle availability also means fewer trade-ins and tighter used car inventories, piling pressure on dealer operations. Many dealerships also lay off employees or reduce their hours when there are trade tensions, a reminder of the larger economic ripple effect. The effect is amplified in smaller cities, where dealerships are large employers.
Will Tariffs Lead to More Waiting for New Vehicles?
Yes, tariffs disrupt supply chains and limit the availability of some makes and models, contributing to waiting periods for new vehicles. Canadian dealerships traditionally have a just-in-time inventory system, with factory shutdowns or border delays because tariffs have direct downstream consequences. For the U.S.-China trade war, waiting periods for some models increased by 4 to 8 weeks. The same was true in 2022 when cross-border limits and a shortage of semiconductors resulted in the postponements of more than 6 months for certain models. Tariffs further escalate the delays by incentivizing manufacturers to avoid shipping to tariff-affected markets, effectively rationing. This means fewer choices on the lot and longer wait times for consumers, especially for popular models like trucks and EVs.
Are Luxury Cars More Severely Affected?
Luxury vehicles are one of the most tariff-sensitive categories as they’re largely imported and usually have high base prices. Adding a 10% tariff on a $100,000 luxury vehicle is like adding another $10,000 in expenses before taxes and registration fees. Most luxury brands, like BMW, Mercedes-Benz, and Audi, export cars from Europe or Asia, exposing them to prevailing tariffs under WTO terms (6.1% to 10%) and retaliatory tariffs during trade wars. Luxury brands account for about 12% of new car sales in Canada, but they are over 25% of the value of imports, as per DesRosiers Automotive Consultants. As tariffs rise, luxury retailers report slowing sales and increased inventory aging, forcing incentive or loss-absorbing strategies that reduce profitability.
How Will Tariffs Affect Auto Financing Rates?
Tariffs indirectly influence auto financing by increasing vehicle prices, loan size, and loan-to-value ratios. This, in turn, makes lenders risk-averse. Banks and finance units may respond by raising interest rates or lowering approval criteria. By 2023, Canadian new-car loan rates ranged from 6.5% to 9%, a rise from sub-4% rates just two years earlier. If that new car increases from $45,000 to $50,000 because of tariffs, and interest rates increase along with it, monthly payments rise by $80–$120. It is disproportionately more costly for younger purchasers and those with questionable credit histories. In addition, lenders view tariff-volatile periods as high-risk, potentially causing loan terms to be shorter or down payments to be higher.
Is Now a Good Time to Buy a Vehicle in Canada?
It depends on how deeply tariffs will likely cut into the supply chain. If tariffs are imminent or rising, purchasing earlier can avoid future price increases. The average transaction price of a new vehicle in Canada hit a record high of $46,250 late in 2023 due to supply chain disruptions and inflation. 10–25% tariff would cost another $3,000–$6,000. Producers can provide temporary rebates to clear inventory before tariffs become effective. Used vehicle prices, while stabilizing, are still inflated by approximately 25% compared to pre-2020 levels. Under such circumstances, if you can secure a deal today, it is likely best to take it instead of waiting for increased prices and reduced options.
What’s the Status of Vehicle Warranties with Cross-Border Buying?
Buying a car in another nation can complicate warranty protection because of differences in certification, service networks, and company policies. Most manufacturers offer Canada-wide or North America-wide warranties, but the conditions will differ. For instance, bringing a U.S. vehicle into Canada may invalidate some aspects of the bumper-to-bumper warranty unless the vehicle is certified to Canadian standards. Transport Canada rules and the Registrar of Imported Vehicles (RIV) process necessitate changes (such as daytime running lights or odometer adjustment) that can impact warranty qualification. Only 61% of separately imported cars had full manufacturer warranty coverage in Canada in 2022. Luxury brands are also more dictatorial; Audi and Lexus will not honor warranties unless the vehicle is sold through their authorized Canadian dealerships.
Do Tariffs Influence Auto Insurance Prices?
Indirectly, yes. Tariffs raise the cost of vehicle replacement and repairs, which can result in increased insurance premiums. The Insurance Bureau of Canada reported that vehicle repair costs increased 17% between 2021 and 2023, partly due to higher prices for parts, many of which are imported. When tariffs are charged on items like bumpers, sensors, or batteries, insurers will charge premiums to reflect increased claim payments. If it had previously cost $4,000 to repair a mid-sized SUV after a collision, tariffs on components may increase that to $5,000 or more. Insurers could increase premiums by 5–10% to cover the difference, particularly on newer vehicles. Also, when higher car prices lower the overall number of insured vehicles, insurers can adjust risk pools and pricing algorithms, impacting rates across the system.
How Do Canadian Auto Workers Get Impacted?
Auto tariffs have a ripple effect throughout the manufacturing supply chain, and workers are among the first groups to bear the brunt. Canada’s auto industry employs roughly 125,000 individuals, with another 400,000 supported through the wider supply chain. Tariffs reduce the demand for cars and result in production cuts, which can lead to temporary or even permanent job losses. When the U.S. instituted 2018 steel and aluminum tariffs, approximately 6,000 Canadian automotive workers were put on furlough due to lower orders. Unifor, Canada’s largest private sector union, cautioned that a prolonged tariff environment could reduce sector employment by 20%, particularly in parts production. Ontario facilities, where more than 90% of Canada’s automotive production occurs, are most at risk. Job instability harms families and contracts local economies, particularly those based on auto-sector wages.
Will Tariffs Cause More Canadian-Made Vehicles?
In principle, tariffs may encourage more local production by increasing the cost of imports, but in practice, it is different. Canada has five major auto assembly plants, all located in Ontario. Although some automakers, such as Honda and Toyota, already manufacture locally, ramping up production is not quick or straightforward. Constructing or adding a plant takes billions and needs steady, long-term demand. Foreign direct investment in automotive manufacturing has slowed since 2020, primarily due to policy uncertainty and international supply chain realignments, according to Invest in Canada. While the 2022 Stellantis-LG EV battery plant in Windsor is promising (projected to create 2,500 jobs), its impact won’t be immediate. Unless coupled with strong industrial policy and incentives, tariffs alone won’t spark a Canadian manufacturing renaissance in the short term.
Can the Government Offset Tariff Costs for Consumers?
The Canadian government can employ fiscal measures to mitigate the tariff shock, but these need tremendous political will and popular support. Some options include direct consumer rebates, dealership subsidies, or redistributing tariff revenues. For example, in 2018’s steel tariffs, Canada allocated $2 billion for impacted industries. Likewise, EV purchasers already receive the federal iZEV rebate of up to $5,000. Raising such incentives to offset tariff-induced price rises could keep demand intact. However, inflation pressure and budgetary tension are involved. The offset mechanisms must be fair, and farm consumers and poorer households that depend on cheap transport would gain the most. Tariffs cut the other way, hurting those with reduced flexibility in timing or transport.
How Do Tariffs Affect the Trade-In Value of My Car?
Tariffs raise the price of new vehicles, which tends to increase the price of used cars, including trade-ins. Demand for used alternatives spikes as new cars become more expensive or more challenging to find. According to Canadian Black Book, trade-in values in Canada jumped almost 40% for best-selling models between 2020 and 2023. However, this upward pressure can be counteracted if tariffs induce economic slowdown or interest rate increases, decreasing consumer liquidity. Additionally, if components for older cars are subject to tariffs, the long-term cost of ownership increases, potentially reducing the trade-in value. For instance, if repairing a 5-year-old SUV is more expensive due to tariffs on foreign parts or electronics, dealerships will offer less to cover that future expense. The trade-in market becomes a game of balance driven by tariff-induced supply and demand dynamics.
Are There Any Incentives or Tax Breaks to Counterbalance Tariff Impacts?
Tax relief for the costs of tariffs is currently minimal; however, policy intervention options are available. Governments can implement targeted incentives, such as reduced sales taxes, increased EV rebates, or bonus depreciation for corporate-use vehicles. For example, small business entrepreneurs can already claim vehicle expenses through Canada’s Capital Cost Allowance system, this could be increased to counteract tariff-driven price increases. In the U.S., tariff relief has sometimes taken the form of temporary exclusions or waivers for critical goods. Canada could pursue a similar strategy for auto parts and specific vehicle types. As of 2024, no dedicated federal rebate exists for tariff compensation; however, provincial programs, such as Quebec’s EV incentives, can indirectly assist. Broader adoption of such measures would require coordinated federal-provincial strategies aligned with trade policy outcomes.
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