Montreal, January 12, 2017 – President-elect Donald Trump’s recent declarations about wanting to impose tariffs at the U.S.-Mexico border to protect the American auto industry pose a threat to the Canadian industry and the thousands of jobs that depend on it, shows a Viewpoint published today by the MEI.
The economic consequences could be serious since almost all (96%) of this industry’s Canadian exports go to American markets. The Canadian auto industry, and the 125,400 direct jobs connected to it, are therefore highly dependent on its economic partner.
But the reverse is also true. American automotive exports to Canada totalled over $62 billion in 2015. “The level of integration of assembly plants and suppliers located on either side of the border is such that the imposition of customs duties would be very costly for both countries,” explains Alexandre Moreau, Public Policy Analyst at the MEI and co-author of the publication.
In the short term, a limited number of American workers might benefit from restrictions at the border. But over the long term, the competitiveness of companies could be reduced compared to foreign manufacturers. If this happens, the number of vehicles produced on American soil could fall, and jobs would be lost.
The imposition of restrictions at the Canada-U.S. border would also cost consumers dearly, as they would have to pay more to purchase the same vehicle. “The integration of the automotive market since NAFTA in 1994 has led to reductions in the price of vehicles all while offering a wider variety of models, to the benefit of consumers,” explains Germain Belzile, Senior Associate Researcher at the MEI and co-author of the Viewpoint.
For all these reasons, it is clearly not in the economic interest of the United States to jeopardize the integration of the American automotive industry with the Canadian industry, nor with the Mexican industry, for that matter. “Given these economic realities, we are confident that the Trump administration will ultimately take them into account when crafting its actual policies,” concludes Michel Kelly-Gagnon, president of the MEI.
The Viewpoint entitled “Is President Trump a Threat to Canada’s Auto Industry?” was prepared by Germain Belzile, Senior Associate Researcher at the MEI, and Alexandre Moreau, Public Policy Analyst at the MEI. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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