President-elect Joe Biden’s administration is expected to bring stability to the North American auto industry after a period marked by trade fights, but experts say his administration will also present challenges for the Canadian sector.
“I don’t think that a Biden administration is going to be especially positive for the Canadian automotive sector,” Flavio Volpe, president of the Automotive Parts Manufacturers' Association, said in an interview.
“But it’s the end of the rule-by-clown wherein we wake up randomly to tariff threats that make it difficult to forward-plan where you allocate product and where you source metals. On balance, we might be a little better off, but it’s not as big a contrast on paper as people may think.”
Canada’s automotive industry is highly integrated with the U.S sector, with parts said to cross the border between six to eight times before a vehicle is finally assembled.
The last four years under U.S. President Donald Trump have been tumultuous for the North American auto industry, as Canada, the United States and Mexico renegotiated the North American Free Trade Agreement and tariffs were threatened and imposed. Trump re-imposed tariffs on imports of aluminum as recently as August. His administration also threatened to impose 25 per cent tariffs on auto imports using Section 232 of the Trade Expansion Act, which would allow the U.S. to tax imports deemed a national security threat.
Jonathan Smoke, chief economist at Cox Automotive, said in a report that Biden’s presidency will reduce the trade frictions that have appeared in recent years.
“Perhaps the biggest benefit for auto will simply be no new surprises and namely removal of the threat to the EU and Japan,” he wrote. “We will likely see far less Section 232 drama with trading partners like Canada.”
Volpe agrees, and while he expects that Biden will bring more stability to the Canada-United States relationship, he said the Democratic candidate’s “Buy American” policies may prove to be negative to the Canadian auto industry.
Biden’s election plan for the American auto industry includes “bold federal procurement and Buy American provisions that will create near-term demand for U.S. auto manufacturing and bring back jobs.” He’s also pledged to offer tax credits to encourage the purchase of electric vehicles made in the U.S.
Those promises may impact operations in Canada, Volpe said, where parts and vehicles are produced for use in the United States.
“It also runs counter to the terms and conditions of the new NAFTA so those are things we are going to have to look our for and potentially work through,” Volpe said.
Mark Warner, trade lawyer at MAAW Law, expects the use of those threats to disappear with the Biden administration, and that the trade relationship between Canada and the U.S. “will go back to normal” – a normal that will still be challenging at times.
“Instead of threatening tariffs against other countries that are competing with the United States, it looks like the Biden approach will be to create incentives for companies to move their production to the United States,” Warner said in an interview.
“They’ve got deeper pockets than we do, so that still presents a challenge to Canada.”
Still, Volpe says that the Canadian industry will be able to work through these challenges, as it has with previous administrations that have also pushed policies focused on “Buy American” provisions.
“Usually, I remind them that Canadian auto suppliers employ 44,000 people in the U.S. in 120 plants in 18 different states,” he said.
“History has shown that American governments usually back down.”
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.