Honda Flags Tariff Threat

Jennifer Thomas, a senior vice president at American Honda Motor Co., stated on Tuesday that the automotive sector faces a severe financial risk if Washington and Ottawa fail to finalize a new trade agreement before the end of the year.

Thomas spoke at a Reuters conference in Detroit. She described the potential outcome of current trade policy as a major setback for manufacturers who rely on cross-border production.

President Donald Trump has threatened to raise tariffs on Canadian vehicles and parts from 25% to 50% on January 1. This increase would apply if the two nations do not reach a bilateral deal. Thomas argued that the industry prefers a trilateral arrangement that includes Mexico, similar to the United States-Mexico-Canada Agreement, or USMCA. Trade groups representing major automakers have pushed for this three-nation model to maintain competitive standards.

The urgency of these comments follows a shift in U.S. trade policy. Jamieson Greer, the U.S. Trade Representative, recently announced that the United States will not automatically extend the USMCA. Instead, the pact will move into an annual review process rather than a 16-year extension. Trump negotiated the USMCA during his first term to replace the North American Free Trade Agreement. It took effect in 2020. The president later criticized the deal, accusing Canada of taking advantage of the United States for years.

Thomas expressed cautious optimism that negotiations will prevent the tariff doubling. She cited recent reports that the U.S. and Canada have resumed trade talks, including discussions on easing levies for critical materials like aluminum. She emphasized that the trilateral agreement is essential for the competitiveness of the U.S. industry. Thomas noted that she had not expected the North American region to face such a disadvantage compared to other global markets.

Honda is the second-largest vehicle producer in Canada, trailing only Toyota. The company maintains that over 60% of vehicles sold in the U.S. are manufactured in domestic assembly plants. However, the industry remains concerned about tariff uncertainty because many vehicle components cross borders regularly during production. The Trump administration has negotiated trade deals with Japan and South Korea, which include 15% tariffs on vehicles.

The next step in the process involves the annual review of the USMCA. Officials must determine the final tariff rates before the January 1 deadline to avoid the proposed increase in duties on Canadian goods.