Ottawa provides tariff relief for automakers but warns of pullback if domestic manufacturing, investment cut

Ottawa is using a carrot-and-stick approach to encourage automakers to keep manufacturing in Canada during the trade war with Washington, granting them relief from retaliatory Canadian tariffs on U.S. vehicle imports but warning this will be cut if they reduce production or investment in this country.

At the same time, the federal government is offering domestic manufacturers in other sectors a six-month exemption from broader countermeasure tariffs Canada has imposed on U.S. imports so they can modify their supply chains to reduce reliance on the United States for inputs. Canada imposed retaliatory tariffs on about $60-billion in U.S. imports in March.

Separately on Tuesday, Honda Canada denied a news report that its plant in Ontario is set to move car production to the U.S., saying no changes are currently planned for the Alliston factory.

Finance Minister François-Philippe Champagne, explaining this new tariff remission plan, said carmakers will be allowed to import a certain number of vehicles free from Canada’s retaliatory levies – a figure based on their Canadian production and planned investments. In early April, Ottawa imposed a tariff of 25 per cent on vehicles imported from the U.S., which is reduced based on Canadian and Mexican content.

This will allow automakers to sell lines of cars not assembled in Canada without facing a countertariff markup of as much as 25 per cent. Ottawa did not announce the exempt-import numbers for each automaker.

Mr. Champagne warned in a statement that the number of tariff-free vehicles a company will be allowed to import from the U.S. “will be reduced if there are reductions in Canadian production or investment.”

Trump muses about tariff relief for automakers, begins process for semiconductor and pharmaceutical levies

He also said businesses will receive six months of relief from broader 25-per-cent retaliatory tariffs on U.S. goods used in manufacturing, processing and food and beverage packaging, and those used to support public health, health care, public safety and national-security objectives.

“This provides immediate relief to a broad cross-section of Canadian businesses that must rely on U.S. inputs to support their competitiveness as well as to entities integral to Canadians’ health and safety, such as hospitals, long-term care facilities and fire departments,” Mr. Champagne’s department said in a statement. “The remission is provided on a time-limited basis to provide businesses and entities with additional time to adjust their supply chains and prioritize domestic sources of supply if available.”

Mr. Champagne also announced that a federal government loan facility for large businesses buffeted by the U.S. trade war is now accepting applications.

On April 3, U.S. President Donald Trump imposed tariffs of 25 per cent on imported automobiles and light trucks and vowed another 25-per-cent tariff on some auto parts starting May 3. The tariffs on Canadian-made autos are reduced based on the degree of U.S.-made content. Most of the vehicles assembled at Ontario’s plants have about 50-per-cent U.S. content. On April 9, Canada retaliated with tariffs of 25 per cent on the portion of each vehicle imported from the U.S. that did not originate in Canada or Mexico, in cases where the manufacturing complies with the rules of the United States-Mexico-Canada trade agreement.

Mr. Trump said Monday that automakers that source parts from Canada and Mexico “need a little bit of time” to reorganize supply chains to produce more in the U.S. “I’m looking at something to help some of the car companies,” he said, without providing details.

The Nikkei newspaper reported Tuesday that Honda is considering moving some production to the U.S. from Ontario and Mexico as the Japanese automaker aims for 90 per cent of cars sold in the U.S. to be made locally in response to the new U.S. auto tariffs.

Honda Canada spokesman Ken Chiu declined to comment on the details of the report, but said in an e-mail, “We can confirm that our Canadian manufacturing facility in Alliston, Ontario, will operate at full capacity for the foreseeable future and no changes are being considered at this time.”

Barclays downgrades U.S. auto sector due to Trump’s tariff policy

Honda employs 4,200 people and makes the Civic and CR-V in the town northwest of Toronto. Annual production is 420,000 cars. Honda also makes the CR-V in Indiana and Ohio, and the Civic in Indiana.

In the days since the tariffs were imposed, Ontario has seen two temporary auto-plant shutdowns and thousands of layoffs.

Stellantis NV paused its production of minivans and Dodge Chargers in Windsor for two weeks ending on April 21. General Motors said its Chevrolet BrightDrop electric parcel van plant in Ingersoll will close on April 21 and mostly remain that way until October, when it will resume with 500 fewer workers.

Mr. Chiu said Honda is confident it can navigate the tariff turbulence but left open the possibility some production could shift.

Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association (CVMA), whose members produced 26 per cent of all vehicles sold in this country last year, said Ottawa’s tariff relief measure is the “best policy from a series of very bad options” caused by the U.S. tariffs. “What the government has put forward helps to offset the damage that could be done to the Canadian economy by Canada’s retaliatory tariffs on automotive.”

U.S. puts drug tariffs on the table, threatening entire supply chains

He said this is not a long-term solution and that the objective should be to meet the U.S. at the negotiating table to ensure that all cars assembled in North America that comply with USMCA rules are free of tariffs.

Ontario Premier Doug Ford, after speaking with Honda Canada, said the automaker is looking at increasing its capacity in the U.S., not moving the Alliston plant.

Prime Minister Mark Carney, on the campaign trail as Liberal Leader Tuesday, said he’s had discussions with auto-sector CEOs and they have profit margins in the single digits and are concerned about the U.S. tariffs.

“When you raise the costs by 25 per cent, guess what? You know, anyone can do the math. You erase the profitability of the activity. And so they’re very concerned. They don’t think that the administration is taking into account how integrated the industry is,” Mr. Carney said.

Mr. Trump still believes Canada should become his country’s 51st state, White House press secretary Karoline Leavitt said Tuesday. Asked at the daily press briefing why Mr. Trump had stopped calling for Canadian annexation, Ms. Leavitt responded that he hasn’t changed his mind.

“I would reject” the idea that “the President’s position on Canada has shifted,” she said, suggesting that he had only stopped talking about it because reporters haven’t been asking him much recently.

With a report from Bill Curry in Ottawa