At the World Economic Forum in Davos on Thursday, President Donald Trump boomed, “Canada has been very tough to deal with over the years. We don't need them to make our cars, and they make a lot of them.”

But Trump’s tough talk and proposed tariffs on Canada would not only hurt one of America’s top trade partners, it would also hurt US automakers and regular Americans shopping for a new car, a new report said.

In “Setting the Record Straight on Canada-US Trade,” Toronto-based TD Economics outlined some of the pain points a 25% tariff on Canadian-made autos and other goods would have on both sides of the border.

“High integration” of the auto sector, with car parts and finished goods crossing both the Canada and Mexico borders, means tariffs would exact a high cost and the industry would suffer the “deepest negative impacts” from the tariffs, the report stated.

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Currently, Canada produces around 10% of cars sold in the US (approximately 225,000 units), with Mexico supplying close to 20%. Interestingly, the US actually produces more cars for Canadian buyers than the other way around, with Canada’s trade administration estimating 1.34 million US-built cars were bought by Canadians in 2023. 

TD also noted that Canada as the second-smallest trade deficit with the US, behind only France, highlighting the flow of products between the countries.

However, in order to onshore that 10% of cars made in Canada to US factories, as Trump would like, TD projects that US auto plants would need to add production of around 225,000 units to existing plants, meaning roughly six new plants would be required on US soil. Conservative estimates for building a single auto factory in the US would be in the billions, not including the variable costs of operating the factory itself once online.

And this portion of the tariff impact doesn’t include the financial pain on Main Street and the consumer.

“By some estimates, average US retail car prices could rise by roughly $3,000, though that would depend on retaliation by both trading partners [Canada and Mexico],” the report said. “In the event of strong counteractions, severe trade dislocations and significant economic consequences would occur, leading to collapsing demand in all three countries.”

To bring a “full-onshoring” of North American production to the US would likely be cost-prohibitive. “Full-onshoring of all non-U.S. production would require a 75% boost in U.S. production and more than $50 billion in new investment,” the report said.

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The report didn't mention another important factor: the impact of tariffs on auto parts and components that flow from Canada and Mexico to the US and back.

TD said this would result in US automakers having to onshore the production of components and import parts from other countries, both of which would entail higher costs.

Aluminum producer Alcoa said on Wednesday that tariffs on imports of Canadian aluminum would create a “massive tariff dislocation” leading to higher aluminum prices, which ultimately would trickle down to consumers. Alcoa produces 900,000 metric tons of aluminum in Canada, with a majority going to the US.

Aluminum is an important component in auto parts like suspension and engine castings, as well as in the aerospace sector.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on X and on Instagram.

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