Among the challenges with this particular file is that Mr. Carney’s plans have been vague from the outset. When he promised the “strategic response fund” during a visit to Windsor, Ont., in March, he said it would be aimed at fortifying domestic supply chains and building an “all-in-Canada network for auto manufacturing components,” with limited explanation as to what that would entail.
But further complicating matters is that, since the initial announcement, the policy’s potential objectives may have changed somewhat because of how Mr. Trump’s assaults on Canadian industry have taken shape.
At the time, the perception in the sector was that Mr. Carney largely meant getting more Canadian-made components – and fewer American-made ones – into vehicles assembled here. That might have helped avoid the problem of components facing tariffs as they went back and forth across the border, while also benefiting parts manufacturers, which (unlike multinational automakers with Canadian assembly plants) are mostly domestically owned.
Since then, however, the U.S. tariffs have at least temporarily created the opposite incentive.
Canadian-assembled vehicles being shipped to the U.S. (which, entering the trade war, was the destination for more than 80 per cent of them) are currently tariffed at a lower rate if they have a greater share of U.S.-made parts, but begin to approach the 25-per-cent maximum tariff if more of those parts are Canadian-made.
At the same time, Canadian-made parts shipped to U.S. assembly plants are not currently tariffed if they’re deemed compliant with the Canada-United States-Mexico Agreement (CUSMA). That means Canadian parts makers are having an easier time with their U.S. order books than their Canadian ones, particularly since some Canadian assembly plants have responded to the tariffs by scaling back production.
So it wouldn’t make great sense for the government to start incentivizing more Canadian-made parts to be rerouted north of the border – seemingly requiring Ottawa to adjust its goals if it wants to proceed with the fund in the near term.
There are multiple possibilities to consider on that front.
One broad option, which Ms. Payne emphasized, would be financing for capital investments – improving productivity or modernizing products – which may be necessary to keep Canadian plants competitive but would be difficult for them to make amid all the turmoil.
Another, which Mr. Volpe has been pushing as well, would be to provide financial support for Canadian assembly plants and their suppliers to gear more products toward Canadian consumers. Heading into the trade war, only about 12 per cent of cars sold in this country were Canadian-made. Production changes to boost that share would take time, but continued uncertainty around selling into the U.S. could justify it as a resilience play.
That sort of longer-term focus, though, may need to be intertwined with more immediate relief – such as liquidity support for smaller parts makers – for which the promised fund could also be intended. And that presents some of the most obvious design complexities, in terms of determining where near-term aid is actually needed, what form it could take and how to quickly adjust it if the tariff picture changes.
Mr. Carney’s government also has to figure out how to align new measures with industry goals that predate the trade war, including the long-term effort to create domestic electric-vehicle supply chains. Meanwhile, Ottawa is being pushed by automakers to drop the federal mandate requiring a greater share of vehicles sold domestically to be electric, which is being framed by the industry as combining with the tariffs to threaten competitiveness. And the government has to be mindful of potential backlash toward an industry that already gets significant subsidies.
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Among the challenges with this particular file is that Mr. Carney’s plans have been vague from the outset. When he promised the “strategic response fund” during a visit to Windsor, Ont., in March, he said it would be aimed at fortifying domestic supply chains and building an “all-in-Canada network for auto manufacturing components,” with limited explanation as to what that would entail.
But further complicating matters is that, since the initial announcement, the policy’s potential objectives may have changed somewhat because of how Mr. Trump’s assaults on Canadian industry have taken shape.
At the time, the perception in the sector was that Mr. Carney largely meant getting more Canadian-made components – and fewer American-made ones – into vehicles assembled here. That might have helped avoid the problem of components facing tariffs as they went back and forth across the border, while also benefiting parts manufacturers, which (unlike multinational automakers with Canadian assembly plants) are mostly domestically owned.
Since then, however, the U.S. tariffs have at least temporarily created the opposite incentive.
Canadian-assembled vehicles being shipped to the U.S. (which, entering the trade war, was the destination for more than 80 per cent of them) are currently tariffed at a lower rate if they have a greater share of U.S.-made parts, but begin to approach the 25-per-cent maximum tariff if more of those parts are Canadian-made.
At the same time, Canadian-made parts shipped to U.S. assembly plants are not currently tariffed if they’re deemed compliant with the Canada-United States-Mexico Agreement (CUSMA). That means Canadian parts makers are having an easier time with their U.S. order books than their Canadian ones, particularly since some Canadian assembly plants have responded to the tariffs by scaling back production.
So it wouldn’t make great sense for the government to start incentivizing more Canadian-made parts to be rerouted north of the border – seemingly requiring Ottawa to adjust its goals if it wants to proceed with the fund in the near term.
There are multiple possibilities to consider on that front.
One broad option, which Ms. Payne emphasized, would be financing for capital investments – improving productivity or modernizing products – which may be necessary to keep Canadian plants competitive but would be difficult for them to make amid all the turmoil.
Another, which Mr. Volpe has been pushing as well, would be to provide financial support for Canadian assembly plants and their suppliers to gear more products toward Canadian consumers. Heading into the trade war, only about 12 per cent of cars sold in this country were Canadian-made. Production changes to boost that share would take time, but continued uncertainty around selling into the U.S. could justify it as a resilience play.
That sort of longer-term focus, though, may need to be intertwined with more immediate relief – such as liquidity support for smaller parts makers – for which the promised fund could also be intended. And that presents some of the most obvious design complexities, in terms of determining where near-term aid is actually needed, what form it could take and how to quickly adjust it if the tariff picture changes.
Mr. Carney’s government also has to figure out how to align new measures with industry goals that predate the trade war, including the long-term effort to create domestic electric-vehicle supply chains. Meanwhile, Ottawa is being pushed by automakers to drop the federal mandate requiring a greater share of vehicles sold domestically to be electric, which is being framed by the industry as combining with the tariffs to threaten competitiveness. And the government has to be mindful of potential backlash toward an industry that already gets significant subsidies.
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