Toyota, Honda face biggest hit from Trump’s proposed 50% tariff on Canadian cars

[TOKYO] US President Donald Trump is targeting Ottawa with a proposed 50 per cent tariff on Canadian car imports – but Japan’s Toyota and Honda 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 Jan 1, 2027, as proposed, analysts said.

While a deal could still be reached, the timing of the US tariffs could not be worse, as Japanese automakers are being stung by competition from low-cost Chinese EVs in markets such as South-east Asia, Europe and Latin America.

The US remains Toyota and Honda’s biggest market and, crucially, one where Chinese rivals like BYD are not allowed in.

Canadian-built cars accounted for almost a quarter of Honda’s US sales and 17 per cent of Toyota’s in 2025, 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 per cent.

“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.

Scrambling to adapt

Canada’s auto industry produces around 1.2 million cars a year and indirectly supports some 427,000 jobs.

SEE ALSO

Canada’s fight with the US has far bigger stakes than trade

Trump renames Lake Ontario as ‘Lake America’ amid escalating trade war with Canada

Will the US-Canada tariff war irrevocably damage bilateral ties?

Canada slaps retaliatory tariffs on US$20 billion of US goods; Washington weighs response

More

Toyota’s exports from Canada to the US include the RAV4, while Honda exports the CR-V. Both cars are among the best-selling SUVs in the US.

The proposed tariffs are the latest example of Trump trade policies that have left the global auto industry scrambling to adapt.

For years, US, 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. US tariffs cost Toyota some 1.4 trillion yen (US$8.8 billion) in the last financial year.

Toyota is now doubling down on US production.

The world’s largest automaker in 2025 said it aims to invest up to US$10 billion over five years to expand its US operations. That will include a new US$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 United States–Mexico–Canada Agreement (USMCA) free trade talks are extended.

USMCA is the revised version of the 1994 Nafta trade pact and has been in place for six years. Trump opted on Jul 1 not to renew it, subjecting it to annual reviews, although talks have continued.

In 2025, South Korea’s Hyundai said uncertainty about USMCA was delaying its investment decisions.

‘Major shift’

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 US market – hardly an easy task, analysts said.

US-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. REUTERS