US-Canada Trade Friction Casts Shadow Over Japanese Automakers: Concerns Over Canadian Production Impact

Amid escalating trade tensions between the United States and Canada, President Donald Trump's announcement to impose a 50% tariff on imported automobiles and parts from Canada, effective January 1, 2027, is likely to significantly impact Japanese automakers, particularly Toyota Motor Corporation and Honda Motor Co., Ltd. According to experts, the proportion of vehicles produced in Canada within the total US sales for both Honda and Toyota stands at approximately 25% and 17%, respectively, marking the highest among major automakers. Consequently, both companies are deemed most vulnerable to a doubling of the current tariff rate from 25% to 50%. Canada's automotive industry produces around 1.2 million vehicles annually, with Toyota and Honda accounting for over three-quarters of this output. Toyota manufactures the RAV4, and Honda produces the CR-V, both popular SUV models in the US, which are then exported to the American market. Julie Boote, an automotive analyst at Pelham Smithers Associates, has warned that both companies might be forced to close some production lines if the 50% tariff comes into effect. "If you truly want to destroy the Canadian auto industry, you can do it with these tariffs," she stated. The US is the largest market for both Toyota and Honda. Furthermore, it is a market where Chinese competitors like BYD are not yet permitted to operate. Currently, both Japanese manufacturers face intense competition from low-cost Chinese electric vehicles in markets such as Southeast Asia, Europe, and Latin America. Should the 50% tariff be implemented, it is anticipated that Toyota and Honda will explore shifting their Canadian production lines to other locations for export to the US. However, analysts suggest this relocation will not be straightforward. Vehicles sold in the US are often designed according to specific market demands and regulations, and factories in other regions are already operating near full capacity. Toyota is estimated to have incurred approximately 1.4 trillion yen ($8.8 billion) in losses in the past fiscal year. The company plans to invest $10 billion over the next five years to expand its operations in the US. Meanwhile, Honda is focused on revitalizing its loss-making automotive division. A senior Honda executive recently indicated that the company might reconsider building an eighth assembly plant in North America if the free trade negotiations under the United States-Mexico-Canada Agreement (USMCA) are not extended. The USMCA, a revised version of the 1994 North American Free Trade Agreement (NAFTA), has been in effect for six years. However, President Trump announced on July 1st that the agreement would not be renewed, necessitating an annual review. Hyundai also stated that it would postpone investment decisions due to the uncertainty surrounding the USMCA's future. Source: VnExpress