America’s Auto Industry Held Hostage

Greetings from West Glacier, Montana!

It turns out there’s never a good time to take a long vacation. You’d think August would be a safe time to take a road trip to see the USA. President Trump has other plans. He’s decided to start a full-on trade war with Canada in which the U.S. auto industry is a hostage.

Make no mistake. The entire U.S. auto sector, not just the Motor City Three, would suffer if Trump’s proposal to levy 50% tariffs on all cars, trucks and auto parts made in Canada goes into effect, and Canada retaliates in kind.

After 32 years of open trade among the U.S., Canada and Mexico, the American auto industry has built highly interconnected North American production systems and supply chains on the assumption that parts and vehicles made in one country could be sold in all three nations more or less tariff-free.

The Cato Institute, a pro-free market think tank, has these charts that illustrate how vital Canada and Mexico are to the U.S. auto sector.

Friend of the Rodeo Warren Browne has a fresh, highly detailed analysis of what a U.S.-Canada trade war would mean for the North American auto industry.

Spoiler alert: Nothing good. There’s a reason why investors dumped shares in the Motor City Three automakers on Monday after Trump’s escalation.

You can place your own bets on whether Trump will escalate his feud with Canadian Prime Minister Mark Carney to this level. Even the usually supportive Wall Street Journal editorial board is giving this a thumbs down. The outcome of the U.S. mid-term elections which occur before Trump’s January 1 deadline could affect Administration tactics, or Carney’s response to them.

Here’s Warren Browne’s special flash report on the potential impact of Trump’s trade brawl. There’s lots of beef here. Full access is for paid subscribers. You can become one for a very reasonable investment.

The regular High Speed Rodeo will be back soon. Here’s Warren:

INTELLIGENCE BRIEFING · U.S. LIGHT VEHICLE MARKET

VEHICLE PERFORMANCE TRACKER_TM

SPECIAL FLASH REPORT

A Briefing on the U.S. Light Vehicle Market

U.S. Auto Tariffs, Production, and Trade Through 2027

WHAT CHANGED SINCE Q2

Sections I through III carry the forecast as it stood before the afternoon of 24 August. They cover the federal deficit and what is left of tariff revenue, the collapse in USMCA vehicle trade, and a production recovery that arrives without workers.

Then the President posted. Tariffs on Canadian vehicles would go from 25% to 50% on 1 January 2027. Prime Minister Carney had already said American tariffs would be met dollar for dollar. Section IV takes that at face value and runs it. It is a separate exercise on separate assumptions, and it sits after the Data Annex for that reason.

The Briefing at a Glance

I. U.S. Federal Budget Deficit and Tariff Revenue

II. USMCA Trade (U.S. Vehicle Exports)

III. U.S. Sales, Production and Employment

Data Annex — Tariff Schedules

IV. If Both Sides Go to 50% (preliminary)

THE BRIEFING AT A GLANCE

Trump Administration goal, September 2024: “We will bring our auto-making to the record levels of 37 years ago… very quickly through tariffs and other smart use of certain things that we have that other countries don’t.” (1, 1.1)

— Overall U.S. government spending will push the budget deficit to $2.0 trillion, up 14.7%.

— Tariff revenue will fall 13.8% from 2025, to $168 billion. The reduction is primarily driven by tariff refunds. (2)

— Sales indicators remain weak. Consumer sentiment, overall retail sales, employment and economic growth all underperformed in July.

— U.S. light vehicle sales will decline by 2.7% this year and remain below 2024 levels.

— U.S. light vehicle production will increase by 0.5% this year. (Production increased 7.8% in July). The 2027 production forecast has been cut.

— U.S. light vehicle exports to USMCA partners will fall 9.8% this year. Every unit lost abroad cancels a unit gained at home by displac

ed imports.

— Good News: Section 338 tariffs will not be applied to Canadian light vehicle and parts imports. Bad News: The current U.S.–Canada trade war will lower economic growth in both countries.