Toyota and Honda may get stuck with the bill for Trump’s Canada tariffs

If the tariffs take effect, Toyota and Honda would likely try to redirect Canadian-built vehicles to other markets and then try to find ways to make up supply for the all-important U.S. market — hardly an easy task, analysts said. U.S.-bound vehicles are often tailored to the market's needs and regulations, while factories elsewhere may already be operating near capacity. "It would represent a major shift from the past," said Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory. Two Japanese suppliers said they were unsure what would happen next and it remained, at least for now, impossible to plan given that it still remained uncertain whether the tariffs would go into effect. "We're trying not to overreact," one of the supplier executives said. ($1 = 160.0800 yen) Canada's auto industry produces around 1.2 million cars a year and indirectly supports some 427,000 jobs. Toyota's exports from Canada to the United States include the RAV4, while Honda exports the CR-V. Both cars are among the best-selling SUVs in the United States. The proposed tariffs are the latest example of Trump trade policies that have left the global auto industry scrambling to adapt. For years, U.S., European, Japanese and South Korean car companies and their suppliers built production chains across North America, taking advantage of cross-border trade deals and, especially in Mexico, lower labour costs. But cost dynamics have now changed drastically. U.S. tariffs cost Toyota some 1.4 trillion yen ($8.8 billion) in the last financial year. Toyota is now doubling down on U.S. production. The world's largest automaker last year said it aims to invest up to $10 billion over five years to expand its U.S. operations. That will include a new $3.6 billion auto plant in Texas, where it intends to move production of the Tacoma pick-up truck from its Baja California plant in Mexico. For Honda, which is struggling to turn around its money-losing car business, tariffs have only added to the strain. A senior executive recently told reporters that it might not build an eighth assembly plant in North America unless USMCA free trade talks among the United States, Canada and Mexico are extended. USMCA is the revised version of the 1994 NAFTA trade pact and has been in place for six years. Trump opted on July 1 not to renew it, subjecting it to annual reviews, although talks have continued. Last year, South Korea's Hyundai `005380.KS` said uncertainty about USMCA was delaying its investment decisions. Toyota and Honda account for more than three-quarters of all cars made in Canada, and analysts say the two Japanese automakers may end up footing the bill for U.S. President Donald Trump’s proposed 50% tariff on Canadian car imports. U.S. President Donald Trump is targeting Ottawa with a proposed 50% tariff on Canadian car imports — but Japan's Toyota `7203.T` and Honda `7267.T` may end up footing the bill. The two Japanese automakers account for more than three-quarters of all cars made in Canada. They could be forced to shutter some production lines if the tariffs go into effect on January 1 as proposed, analysts said. While a deal could still be reached, the timing of the U.S. tariffs couldn't be worse, as Japanese automakers are being stung by competition from low-cost Chinese EVs in markets such as Southeast Asia, Europe and Latin America. The United States remains Toyota and Honda's biggest market and, crucially, one where Chinese rivals like BYD `002594.SZ` aren't allowed in. Canadian-built cars accounted for almost a quarter of Honda's U.S. sales and 17% of Toyota's last year, the most among major automakers, according to Barclays analysts. As a result, the two face the biggest potential hit from Trump's plan to double the levies from the current 25%. "If you really wanted to destroy the Canadian auto industry, you could with these tariffs," said Julie Boote, autos analyst at Pelham Smithers Associates in London. Both companies would likely have to close some of their Canadian assembly lines, she said. Toyota and Honda declined to comment.

Toyota and Honda may get stuck with the bill for Trump’s Canada tariffs

Analysts say a major shift would be needed

Production, investment and supply-chain pressure

Toyota and Honda face possible hit from proposed Canada tariffs

Related News

Vessels crossing Hormuz strait drop to 5 per day over weekend

Google Maps will show 'Lake America' in US, not 'Lake Ontario'

Japan 2-year yields rise to 31-year high as auctions, rate hikes loom

Nasdaq trade halt continues FTFT.O halt news pending at 03:28 AM

British Business - August 31