Canada’s Auto Industry Under Trump’s 25% Tariffs: Oshawa, Windsor and the USMCA Rules

Canada’s auto sector was built on the premise that a vehicle could cross the Detroit River seven times before it was finished, and the 2025 tariffs put a price on every crossing. For sixty years, from the 1965 Auto Pact through NAFTA and the 2020 USMCA (known in Canada as CUSMA), Ontario’s assembly plants and parts makers operated as an extension of Michigan’s. The second Trump administration’s Section 232 duties, the Canadian counter-measures, the remission framework that followed and the 2026 joint review of the agreement have changed the assumptions behind every investment decision in the sector. This article explains the design of the tariffs, how they hit each plant, how Unifor and Ottawa responded, and what the CUSMA review means for the next decade. It is part of the Canadian Company Stories hub.

How integrated is the Canada-US auto supply chain?

More integrated than any other bilateral manufacturing relationship in the world. Canada assembles roughly 1.3 to 1.5 million light vehicles a year, almost entirely in southern Ontario, and exports about 85 to 90 per cent of them to the United States; in return it imports most of the vehicles Canadians buy from US and Mexican plants. Parts flow both ways continuously: engines from Windsor and transmissions from St. Catharines go into US-assembled vehicles, while stampings and electronics from Michigan and Ohio feed Ontario lines.

The architecture dates from the 1965 Auto Pact, which allowed duty-free trade in vehicles and parts provided manufacturers kept a minimum ratio of Canadian production to Canadian sales. NAFTA in 1994 removed the ratio and extended the zone to Mexico; USMCA in 2020 tightened the rules of origin, requiring 75 per cent regional value content, 40 to 45 per cent of a vehicle’s value from plants paying at least US$16 an hour, and 70 per cent North American steel and aluminium. Canadian plants complied easily because their content is overwhelmingly North American.

The industry directly employs about 125,000 people in assembly and parts, with several hundred thousand more in dealerships, aftermarket and services. The five assemblers are General Motors (Oshawa and CAMI Ingersoll), Ford (Oakville, currently retooling), Stellantis (Windsor and Brampton), Toyota (Cambridge and Woodstock) and Honda (Alliston). Toyota and Honda, building hybrids and conventional vehicles mostly for North American sale, have been the steadiest; the Detroit Three plants are the ones that have borne the tariff damage.

For the parts side, Magna in Aurora and Linamar in Guelph are the national champions, with hundreds of smaller suppliers in the corridor from Windsor to Oshawa. The Kurums profile of Magna International covers how the largest of them absorbed the 2025 shock.

How were the 2025 auto tariffs designed?

As a Section 232 national-security measure layered on top of, and separate from, the IEEPA “fentanyl” tariffs that hit Canada in March 2025. President Trump announced the vehicle tariff on 26 March 2025 and it took effect on 3 April at 25 per cent on all imported passenger vehicles and light trucks. Parts followed on 3 May, covering engines, transmissions, powertrain components, electrical systems and a defined list of other items.

Three carve-outs determined who got hurt. First, for vehicles that qualify under USMCA, the tariff applies only to the value of non-US content, so a Canadian-built vehicle with 60 per cent US parts pays 25 per cent on 40 per cent of its value, an effective rate of 10 per cent. Second, USMCA-compliant parts are exempt entirely pending a process to identify their non-US content, which has not been completed. Third, in late April 2025 the administration gave carmakers paying the vehicle tariff an offset worth 3.75 per cent of a US-built vehicle’s value in year one and 2.5 per cent in year two, and exempted them from stacking the 25 and later 50 per cent steel and aluminium duties on the same goods.

The practical effect for Canada was a split industry. Parts, which make up most of the cross-border flow by value, kept moving tariff-free as long as they met the rules of origin. Finished vehicles assembled in Ontario, which carry significant Canadian labour and Canadian-made content, became 8 to 15 per cent more expensive to sell in the US depending on their parts mix. That differential is why Stellantis chose Illinois over Brampton for the Compass and why GM could not justify a third shift of Silverado pickups in Oshawa.

A separate thread of US law matters here. In February 2026 the Supreme Court ruled in Learning Resources v. Trump that IEEPA does not authorise tariffs, forcing refunds of about US$166 billion in fentanyl and reciprocal duties. The ruling did not touch Section 232, so the auto, steel and aluminium tariffs stayed in force, and the administration later added a Section 338 tariff of 50 per cent on a list of Canadian goods including cars in August 2026 according to tariff trackers.

What did Canada do in response?

Canada matched the tariff, then built an escape hatch for companies that keep building in Canada. On 3 April 2025 Prime Minister Mark Carney announced a 25 per cent counter-tariff on US-made vehicles that do not comply with USMCA, and on compliant vehicles only on their non-Canadian, non-Mexican content, with the revenue earmarked for affected workers. It took effect on 9 April.

Six days later Ottawa published the remission framework. Automakers that produce vehicles in Canada can import a set number of US-built vehicles duty-free, with the quota reduced if the company cuts Canadian production or investment. The framework is explicitly performance-based: it was written to keep GM, Ford, Stellantis, Honda and Toyota from relocating, and it ties each company’s relief to its own Canadian footprint. Ottawa also suspended counter-tariffs for six months on US goods used in Canadian manufacturing, food processing and healthcare, and opened the Large Enterprise Tariff Loan facility for firms with no other liquidity.

The broader retaliation unwound over the summer. Canada had imposed 25 per cent tariffs on about C$30 billion of US goods on 4 March and a further C$29.8 billion on 13 March. After Trump raised the IEEPA rate on non-USMCA Canadian goods to 35 per cent from 1 August 2025, Carney on 22 August dropped most Canadian counter-tariffs on USMCA-compliant US goods to restart negotiations, keeping only the auto, steel and aluminium measures. Talks were then cancelled by Trump in October 2025 over an Ontario government television advertisement, which illustrated how little the structural measures depended on the diplomatic weather.

Unifor, the union representing Detroit Three workers, pushed consistently for Ottawa to make relief conditional on jobs. National president Lana Payne argued that any automaker benefiting from the remission quota should be required to maintain shifts and product allocations in Canada, and the union took the lead in pressing Stellantis over Brampton. The policy answer was partial: remission is conditional on production, but there is no mechanism to force a product allocation.

What happened at GM’s Oshawa and Ingersoll plants?

GM cut a shift at Oshawa and ended its electric van programme in Ingersoll, the two most direct plant-level consequences of the tariffs. Oshawa, which GM had closed in 2019 and reopened in 2021 to build Silverado pickups for export, had run three shifts since 2022 with around 3,000 hourly workers. In May 2025 the company announced that it would drop to two shifts from the autumn, with several hundred layoffs, citing the need to align production with the tariff environment and a shift of some Silverado volume to Fort Wayne, Indiana.

CAMI in Ingersoll was the showpiece of GM’s Canadian EV strategy: a C$2 billion conversion, supported by Ottawa and Ontario, to build BrightDrop Zevo 400 and 600 electric delivery vans from 2022. Demand never materialised. GM idled the plant for extended periods in 2025 and in October 2025 confirmed it would end BrightDrop production indefinitely, leaving about 1,200 workers on layoff and the plant without a product. GM later said it was exploring other uses for the site. For the parts region around London and Woodstock, Ingersoll’s idling compounded the loss of the expected Volkswagen battery demand in St. Thomas discussed in the Kurums article on Canada’s EV battery plants.

Ford’s Oakville plant is a different story with a similar ending: closed in 2024 for a retool to EVs, then re-planned in 2024 to build F-Series Super Duty pickups from 2026, which means it has produced nothing through the entire tariff period. The pickups it will build are predominantly for the US market and will pay the 25 per cent duty on their non-US content, unless Ford restructures sourcing.

Why did Stellantis leave Brampton and what did Ottawa do?

Because the tariff made a US plant cheaper for a US-market vehicle, and because Stellantis had an idle plant in Illinois it had already promised the UAW it would reopen. Brampton had ended Charger, Challenger and 300 production in 2023 and was being retooled for the next-generation Jeep Compass in combustion, hybrid and electric forms, with production due to start in late 2025 on a single shift. The 2023 Unifor contract was ratified on that basis, and the retool was part of the broader package of federal and Ontario support for Stellantis that included the NextStar battery plant.

On 15 October 2025 CEO Antonio Filosa announced US$13 billion of US investment over four years, including the reopening of Belvidere, Illinois to build the Compass. Carney said publicly that the Compass was scheduled to be built in Canada and that his government expected Stellantis to honour its commitments to Brampton workers, and Unifor demanded Ottawa claw back support. Stellantis told the House of Commons industry committee that month, and wrote to the prime minister in December, that Canada’s EV availability standard made Canadian assembly uneconomic. By mid-2026 the company’s own disclosures listed Brampton as vacant.

Ottawa’s leverage was limited to the remission quota and future funding. The remission framework reduces a company’s duty-free import allowance if it cuts Canadian production, which raises Stellantis’s cost of selling US-built vehicles in Canada but does not create a Brampton product. In 2026 the Carney government repealed the 2035 zero-emission vehicle mandate, replacing it with emissions standards and a new EV rebate, a change that Stellantis and other carmakers had demanded. The Brampton workforce, more than 3,000 at its 2022 peak, remains without a product as of October 2026, and the plant’s future is one of the live issues in the CUSMA review.

Why have parts makers done so well?

Because the tariff was written to tax vehicles, not USMCA-compliant parts, and Canadian suppliers had already organised themselves around the rules of origin. Linamar is the clearest example: 2025 sales of C$10.23 billion were slightly lower than 2024, but normalised net earnings reached a record C$622.1 million and free cash flow C$937.2 million. In the first quarter of 2026 sales rose 16.1 per cent to C$2.94 billion and the company told investors that more than 90 per cent of its revenue was not affected by the US tariff regime. Executive chair Linda Hasenfratz attributed the performance to making parts in the same region as the customer and to a wave of new contracts as carmakers sought North American certainty.

Magna reported a similar pattern at larger scale: an initial estimate of about US$250 million in annualised direct tariff exposure was whittled to roughly US$30 million of unrecovered cost in 2025 through customer recoveries and restructuring, and by Q2 2026 net recoveries were positive. Both companies benefited from a second-order effect too: as carmakers re-sourced to raise US and North American content, Ontario plants that already qualified won business from Asian and European suppliers that did not.

The exception is the machinery side. Linamar’s Skyjack aerial platforms and agricultural equipment are finished goods, and new Section 232 duties on certain industrial equipment from April 2026 hit them directly. Management called the impact manageable, but the point stands: the tariff map is drawn product by product, and companies on the wrong side of a line can move to the right side only by changing what they make or where.

What does the 2026 CUSMA review mean for the industry?

It means uncertainty is now permanent rather than episodic. USMCA’s joint review clause required the three governments to decide by 1 July 2026 whether to extend the agreement for a further 16 years. Canada formally requested renewal on 1 June 2026. On 1 July the United States announced it would not renew, which under the treaty triggers annual reviews for the next ten years, with the agreement expiring on 1 July 2036 unless the parties agree otherwise. Any party can also withdraw on six months’ notice.

For auto investment the consequences are concrete. A plant decision made in 2026 must assume that rules of origin, content thresholds and tariff exemptions could change at any annual review, and that the United States will use each review to press for higher US content. Washington’s stated priorities include tightening the “melted and poured” steel and aluminium rules, raising the US-specific labour value content, and restricting Chinese components in North American vehicles, all of which favour US over Canadian plants at the margin.

Canada’s negotiating position rests on the parts trade, energy, and critical minerals, the last of which the United States needs for its own battery and defence industries. The Kurums article on the Canada-US trade war sets out the broader bargaining table. In the auto sector specifically, Ottawa’s leverage is the remission quota, which allows it to tax US-built vehicles sold in Canada, and the 100 per cent surtax on Chinese EVs that aligns Canada with US policy against Chinese entry.

What can founders and investors learn from Canada’s tariff year?

First, policy design matters more than policy headline. A 25 per cent tariff sounds uniform, but its carve-outs for compliant parts and non-US content created winners and losers inside the same industry. Investors who modelled the sector on the headline rate sold Linamar and Magna in April 2025 and missed record earnings; those who read the proclamation understood that suppliers were protected.

Second, government relief that is conditional on behaviour protects the treasury better than it protects jobs. Canada’s remission framework and performance-based battery subsidies kept public money from being spent on plants that never opened, but they did not stop Stellantis, GM or Honda from reallocating products. Ontario communities that invested in infrastructure around those promises carry the cost.

Third, hybrids were the hedge nobody subsidised. Toyota and Honda’s Ontario plants, building hybrid RAV4s, Lexus models and CR-Vs mostly for North American buyers, ran at capacity through the tariff year while subsidised EV projects stalled. For founders in any sector, the lesson is to look for the product that sells under both policy regimes rather than the one the current regime rewards most. Readers interested in how Canada’s financial system absorbed the shock can turn to the Kurums piece on the Big Six banks.

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