Building walls around the auto industry won’t build prosperity

It is safe to say that U.S. President Donald Trump’s war on the Canadian auto industry is seen as poor policy almost everywhere except inside the walls of the Oval Office. So why is it that so many people in Canada seem keen to copycat his policies?

Mr. Trump is using tariffs to try to force American, European and Asian manufacturers to move production out of Canada and into the United States. While his sometimes legally dubious justifications for tariffs shift constantly, his end goal is straightforward: if you want to sell cars in America, make sure they are built by Americans.

In doing so, he is throwing a wrench into an integrated continental manufacturing system and supply chain that is a huge benefit to companies, workers and consumers. He is also holding the Canadian auto industry hostage in his tariff negotiations with Ottawa, knowing full well that an isolated Canadian industry would quickly become less efficient and, in the long run, could well wither away – taking roughly 40,000 vehicle-manufacturing jobs with it and imperilling another 70,000 jobs in parts manufacturing.

Canada’s response, therefore, is critical. It needs to be thought through carefully.

Mr. Trump was the first to impose tariffs on Canadian-made vehicles, in 2025. Canada retaliated a month later. More recently, Mr. Trump retaliated against Canada’s retaliatory tariffs by imposing tariffs on a wide variety of Canadian goods, although automobiles were excluded.

Ottawa, meanwhile, is imposing another round of retaliatory tariffs on $27.6-billion worth of U.S. goods. They do not include automobiles, but Canada’s original retaliatory auto tariffs remain in place.

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At the same time, a chorus of “if you want to sell here, you have to build here” is rising across the country. The unions representing auto workers have made it their mantra. The Conservative opposition has picked it up and run with it. And the Carney government is considering a tradeable-credit system that would reward auto companies for producing and investing in Canada by giving them preferential access to the Canadian market.

Protectionism is poor policy when Mr. Trump does it, and it doesn’t suddenly become smart when Canada mimics him.

We understand that Canada is currently in retaliatory mode, and that tit-for-tat tariffs are not Ottawa’s end game. The government is buying time, showing strength and has stated more than once that its long-term goal is a return to a tariff-free continental auto trade.

As it should, because Canada has the good fortune to be part of an integrated continental production system that allows it to maintain an auto sector against the odds.

Australia, a continent unto itself, assembled its last mass-produced car in 2017, after decades in which governments progressively dismantled the industry’s protections from foreign competition. It simply became too costly to keep subsidizing and protecting local production.

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Canada, on the other hand, has benefited for more than 60 years from being part of a North American production system – an arrangement that began with the Auto Pact and largely continues under the continental trade pact.

Assembly plants in Ontario can specialize in particular models for the entire North American market, drawing on parts from all three countries, rather than trying to produce a gamut of models for a smaller national market.

Would Canada’s auto sector fare any better than Australia’s if continental integration disappeared and Canada tried to sustain domestic production with tariffs – if its mantra became, like Mr. Trump’s, “Build here if you want to sell here”?

In the long run, no. Tariffs can only make an inefficient market viable for so long, and only at the expense of higher prices, poorer quality and limited choice.

Nor is it a smart play for Canada to threaten European and Asian manufacturers’ access to the Canadian market unless they build cars here. Beyond the firsthand costs of such protectionism, there is the cost of retaliation. Why should South Korea and the European Union give Canada preferential trade access if this country is busy erecting barriers?

The day after trade talks with the United States broke off, Prime Minister Mark Carney said, “We believe in free trade.” That is the right message to the world, that Canada still understands that prosperity comes from tearing down barriers to international commerce, not from building walls.