If U.S. President Donald Trump enacts a 25 per cent tariff on Canadian-made automobiles, it could send Ontario into recession.
That’s according to BMO economist Sal Guatieri.
“By our estimates, that could slow Canada’s economy by a good one per cent, possibly more. And of course, most of that impact would hit hard in Ontario, which is the province that accounts for most Canadian auto production,” he said.
Ontario is particularly hard hit because its economy is so tied to the auto industry: Guatieri said over 85 per cent of cars made in Canada go to the U.S. and shipments of autos and parts to the U.S. account for about 30 per cent of Ontario’s exports.
Trump has renewed calls for auto tariffs as U.S. and Canadian officials continue to vie for a NAFTA deal in Washington.
Last week, Trump said the easiest way to get Canada to agree to a deal would be to enact tariffs on the auto industry.
“I think with Canada, frankly, the easiest thing we can do is to tariff their cars coming in,” he said when announcing a deal between the U.S. and Mexico.
Prime Minister Justin Trudeau has promised to protect autoworkers, and Foreign Minister Chrystia Freeland returned to Washington Wednesday to resume trade talks.
Canadian and American trade lawyer Mark Warner says it’s unlikely that Trump is bluffing, and he will enact his threat if NAFTA or a new trilateral deal doesn’t go through.
He warns that Canada hasn’t seen a significant impact from Trump’s previous tariffs on steel and aluminum, but that won’t be the case for auto tariffs.
“A lot of what we trade with the United States is auto-related, a huge part,” Warner said. “And it seems to me that we would feel that hit a 25 per cent tariff.”
While the impact to Canada will be severe, Guatieri says Ontario could see twice the damage, up to a two per cent hit to its GDP.