The trade-related war of words has heated up into something more meaningful – and potentially damaging – between Canada and the United States.
Originally exempt from American steel and aluminum tariffs, Canada is now on the “national security threat” list. The Canadian government has responded in kind, hitting American steel and aluminum imports with retaliatory tariffs, as well as a suite of politically chosen consumer goods.
Canada is not alone. Washington put tariffs on $34 billion worth of Chinese goods on July 6. Beijing immediately retaliated.
These tariffs will do damage, but the threat of a 25 percent levy on automotive imports from Canada into America is, in economic terms, the nuclear button. Since the advent of the North American Free Trade Agreement, the North American automotive industry has become one of the most integrated and competitive on earth. Such a tariff could upend all of that and may in itself be enough to tip the entire Canadian economy into recession.
Studies from banks and industry groups have recently warned that the tariffs – if implemented in full for any length of time and if met with retaliatory measures by Canada – could threaten well over 100,000 jobs in Canada in manufacturing, retail, and other sectors.
On May 3, the National Taxpayers Union urged U.S. President Donald Trump and Congress to reconsider American tariff policy. The open letter was signed by over 1,100 economists from across the entire spectrum of political leanings.
The threat is real for the fleet industry which will now need to reexamine selector lists and vehicle replacement, factoring in an unexpected price hike for new vehicles. Auto dealers typically have 60-90 days of inventory on hand. Tariffs would begin to bite with higher prices and constrained supply within a couple of months.
Last year, the average transaction price for new vehicles topped $40,000 for the first time. A tariff of 25 percent applied to vehicles coming into Canada could add close to $10,000 to that price. Supply constraints brought about by such a trade war with the U.S. would provide further upward pressure on prices, to the detriment of everyone in the industry and, of course, consumers.
The current U.S. administration has proven it is willing to levy tariffs. Fleets must prepare for what could be a protracted period of increased operational costs because of them.
NAFA Fleet Management Association
http://www.nafa.org/