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Ontario Premier Doug Ford speaks during a press conference in Toronto, Canada, on May 30, 2024.
Three amigos, or two?
Ford called on Mexico to match Canadian and American tariffs on Chinese imports to stop it being a “backdoor for Chinese cars, auto parts, and other products."
Ford’s province depends on the CA$11.6 billion auto industry, with integrated supply chains across the border. Any threat to that could cause an economic meltdown.
During the negotiations of the new NAFTA — the United States-Mexico-Canada Agreement — in 2019, some Conservative critics of Justin Trudeau’s government faulted the Canadians for making common cause with Mexico in resisting US demands. They are getting an early start this time ahead of the deal’s review in 2026.
“If Mexico won’t fight transshipment by, at the very least, matching Canadian and American tariffs on Chinese imports, they shouldn’t have a seat at the table or enjoy access to the largest economy in the world,” Ford said.
Deputy Prime Minister Chrystia Freeland, who played the pivotal role in negotiating USMCA withUS Trade Representative Robert Lighthizer, has repeatedly emphasized that Canada and the United States are in lockstep on tariffs on China.
Graeme Thompson, a senior analyst with Eurasia Group's global macro-geopolitics practice, says it is hard to know if they will remain in lockstep if Donald Trump’s tariffs on China get too high.
“Given Canada’s dependence on the US market, I think Ottawa will be tempted to do things that only a few years ago would have seemed impossible – including imposing significant new tariffs on China and abandoning Mexico if necessary to preserve its trade and security relationships with Washington.”
Lighthizer, who is expected to return to his job under Trump 2.0, is laying the groundwork for a new tariff policy that would include a 20% tariff on all goods coming into the US.
If there is no exemption for Canada, the policy would also lead to a sudden and dramatic slowdown in the Canadian economy.
Expect the Canadians to remind the Americans that Canada exported $124 billion of oil to the United States last year. Any new tariffs on that trade would increase prices at the pump for Americans, which Trump’s party would pay for in the 2026 midterms.
President Joe Biden riding around in a Hummer EV during a tour of the General Motors 'Factory ZERO' electric vehicle assembly plant, in Detroit, Michigan, back in 2021.
Biden boosts EVs with new tailpipe emissions rules
As goes the American car market, so goes the world. Or at least large swathes of North America. With the Biden administration’s latest auto regulations, that may mean electric vehicles pull ahead as those with internal combustion engines.
On Wednesday, President Joe Biden introduced tailpipe pollution limits that require automakers to reduce carbon emissions from their vehicles by 56% by 2032 based on 2026 levels.
The new rules also require automakers to ramp up EV production. The administration is aiming for full EVs to account for roughly 35 to 56% of all vehicle sales and for plug-in hybrids to make up 13 to 36% within the next eight years. Full EVs currently account for 7.6% of sales.
Conscious of growing American protectionist impulses – and the coming presidential election – Biden hammed hard on protecting American auto jobs, promising the EVs would be made in the US-of-A. Democrats were concerned about alienating unions or automakers and their workers ahead of November.
In Canada, Prime Minister Justin Trudeau's government is planning for 20% of new light-duty vehicles sold to be zero-emissions by 2026, gradually rising to 100% by 2035. Biden’s move may help his cause as it pushes automakers to speed up production on more environmentally friendly vehicles.Speed bumps on the road to EV dominance
On Thursday, Ford withdrew its full-year results forecast because of uncertainty over cost structures stemming from its tentative deal with the United Auto Workers, which could tack on an additional $900 in labor costs per vehicle. The company is scaling back its investment in EV technology after disappointing earnings — it is losing $36,000 on every EV sold. “The narrative has taken over that EVs aren’t growing. They're growing. It’s just growing at a slower pace than the industry and, quite frankly, we expected,” Ford Chief Financial Officer John Lawler said.
Meanwhile, General Motors recently postponed the construction of a major new EV plant in Michigan in the face of softening demand. Now, the Detroit-based auto giant doesn’t plan to start building until late 2025.
Both developments raise questions about the big bets both Biden and Trudeau have placed on the EV industry, with massive industrial subsidies for battery plants and tax credits for EV purchases. Even with large incentives, consumer adoption is slower than the car companies anticipated. The business challenge may make it harder to argue that the transition to a greener economy offers as much opportunity as hardship, an important argument for progressives in their debate with conservatives over the shape of the economy of the future.