HARD TIMES REVING UP FOR CANADIAN AUTOMOTIVE SECTOR
On Wednesday March 25th, the President signed a proclamation which invoked s. 232 of the Trade Expansion Act of 1962, s. 604 of the Trade Act of 1974 and Section 301 title 3 of the U.S. Code. This new Executive Order has imposed a 25% tariff on imports of automobiles and certain automobile parts.
What is a tariff?
A tariff is a duty imposed on the import of goods into a country, usually at a stated percentage, with the importer charged the corresponding amount based on the "value for duty" of the good. A 25% tariff on a $50,000 car is $12,500. Tariffs, if paid by a wholesaler or retainer are usually passed on down the supply chain and borne by the final consumer. In that sense, a tariff functions like a tax; the government imposes a price on goods making those goods more expensive. The hope is that by increasing the price of foreign goods, citizens will purchase homegrown alternatives.
What Does this Executive Order Do?
This tariff targets automobile and automobile parts made in Canada. In specific, the tariff will apply to "imported passenger vehicles" (sedans, SUVs, crossovers, minivans, cargo vans, and light trucks) plus key automobile parts (engines, transmissions, powertrain parts, and electrical components). This means that an amount equal to 25% of the value of all automobiles and automobile parts will be charged to the importer of those automobiles and automobile parts.
There is a partial exemption for automobiles having "U.S. Content" defined as the "value of the automobile attributable to parts wholly obtained, produced entirely, or substantially transformed in the United States." Accordingly, this tariff has been abated to the degree that the automobile in question consists of U.S. Content. Importers and producers will want to be wary of this partial exemption as failure to accurately state the U.S. Content will lead to U.S. Customs to assess full value of the automobile for the 25% tariff regardless of U.S. Content. Retroactive assessments are also possible.
Will the Trade War Ever End?
The U.S. President has also reserved the right to further limit the tariff-free access to the U.S. market. The "Secretary [of Commerce] shall inform the President of any circumstances that, in the Secretary's opinion, might indicate the need for further action by the President". There is, therefore, a concerted need to begin planning for a long, bitter and unrelenting trade war.
To date, Canada has not announced any direct tariffs aimed at the US Automotive Industry – and hopefully, for all Canadians, it does not! – but current Prime Minister Carney has suggested that this move will lead to a monumental break in Canada's relationship with the US. It remains to be seen whether a new government, would take the same approach.
Takeaways
There is no telling when these tariffs will be rescinded. There is no telling how much farther this trade war goes. There is no telling how much your company stands to lose. Canadian automakers need to be receiving top of the line advice from experienced trade professionals. Now may be the time to seek professional advice!
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