Don’t be fooled by U.S. President Donald Trump’s recent promises to ease tariffs on foreign-made vehicles and parts so the U.S. auto sector can adjust. Car costs are still poised to rise by thousands of dollars per vehicle, posing a disadvantage to Canadian car manufacturers. 

That’s The Logic‘s finding from a dive into the constellation of costs, tariffs, exemptions, rebates and post-facto relief measures a North American automaker must now navigate before it slaps a price sheet on a vehicle.

The purpose of the exercise is to show the likely impact of the tariffs as they currently stand. To do so, we have compared the cost and pricing effects on two hypothetical SUVs, which before the tariffs would have sold for US$40,000. One is built in Canada; the other in the United States. We have chosen this scenario because it reflects both real-world market conditions, and the immense complexity and variability of cost and pricing in the real-world automobile industry.

How variable are we talking? A recent estimate by U.S.-based Anderson Economic Group found that the overall tariff impact on a vehicle sold in the U.S. would be anywhere between US$2,000 to US$12,000, depending on its value, make and the country where it is assembled. 

That’s a big range. But it’s a meaningful one to Canada’s auto industry, and its economy. According to Anderson, U.S.-made sedans like the Toyota Camry Hybrid will be least impacted, while vehicles like the Canadian-made Chrysler Pacifica van will see “medium” impacts of US$4,000 to US$8,000 added to production costs. Luxury imports will face the biggest price changes, the group estimates. 

Why it matters: U.S. car buyers will feel some pain from their president’s tariff policy no matter the vehicle they purchase. From a Canadian perspective, the pain goes far beyond the pocketbook. Our exercise shows how hard it is for automakers to justify using Canadian auto assembly plants to make the same vehicles that would cost thousands less if they were made in the U.S. 

To be sure, Canadian-made vehicles will fare better in the U.S. market than those made outside North America—which face 25 per cent tariffs on the full cost of the vehicle. And the calculation is going to differ for every vehicle. 

But everyone from Unifor to the Canadian Chamber of Commerce has warned that if tariffs aren’t entirely lifted, we could see “less employment, domestic and foreign investment, and retirement savings for future retirees.” 

To understand why, follow the journey of our two fictional SUVs that—in a not-so-fictional scenario—we’ll say were made across the Detroit River from each other.

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Case 1: SUV made in Detroit 

Retail price on Jan. 1, 2025 (before Trump’s tariffs): US$40,000

That price of US$40,000 would include markups applied after the vehicle is made. Based on standard industry practice we’ll assume it includes a manufacturer markup of seven per cent, and a dealership markup of 3.9 per cent. 

That means our American-assembled SUV has a production cost of US$35,979—the starting point for this exercise.

Production cost: US$35,979

Step 1: Pay tariffs on parts that do not qualify for the USMCA

Prior to the vehicle’s final assembly, automakers will have paid 25 per cent tariffs on parts from overseas manufacturing hubs, such as Japan, South Korea, Germany and China. Tariffed parts include powertrains, suspensions, steering and tires, as well as other parts like windshields, airbags, speedometers, locks and brake hoses that are not “wholly obtained, produced entirely, or substantially transformed in the United States.” 

Importantly, U.S. Customs officials have been instructed to exempt Canadian and Mexican parts traded under the United States-Mexico-Canada Agreement (USMCA)—a bit of good news for parts-makers in both countries. Stellantis chief financial officer Doug Ostermann estimated that its U.S.-manufactured vehicles contain about 80 per cent USMCA-compliant parts. 

Per Ostermann’s estimate, we’ll say it has 80 per cent USMCA-compliant parts that are tariff-free. That means the automaker likely paid 25 per cent tariffs on 20 per cent, or US$7,195.80 worth, of parts. 

Cost of tariffs on parts: US$1,798.95

New production cost: US$37,777.95

Step 2: Pay tariffs on assembled vehicles

None, if sold domestically. The point of Trump’s tariffs is to encourage carmakers to assemble products in the U.S.

Cost: $0

Step 3: Add markups

Taking our new production cost of US$37,777.95, we’ll add back the seven per cent markup for the automaker and the 3.9 per cent dealership markup. There is some debate about whether automakers will absorb some of this cost, but in our scenario they try to maintain margins by raising the vehicle’s retail price. 

Markups: US$4,221.93

Final price of American-assembled SUV in the U.S.: US$42,000

But wait, there’s more: The Trump administration is drawing up a process for carmakers to request tariff relief on vehicles made in the U.S., and aims to have it ready by May 29. The automaker would be eligible for rebates of up to 3.75 per cent of the sales price between April 3, 2025 and April 30, 2026. 

It’s not yet clear what automakers will do when they get that money: invest in their supply chains, pass the savings on to future customers by taking a hit on margins, or perhaps offer other non-price incentives like electric vehicle chargers or extended warranties.

However they use it, it’s a notable advantage to the U.S. industry. In our scenario, a 3.75 per cent rebate would mitigate all but US$223.95 of the cost of tariffs on parts.

Cost reduction to automaker: – US$1,575

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Case 2: SUV made in Windsor, Ont. 

Retail price on Jan. 1, 2025 (before Trump’s tariffs): US$40,000

Since this vehicle is being built for sale at U.S. dealerships we will assume the production cost is the same as the Detroit-assembled car.

Production cost: US$35,979

Step 1: Pay tariffs on imported parts

The Canadian government does not apply tariffs to auto parts shipped into Canada. It has, however, applied retaliatory tariffs to American steel and aluminum. And while Canadian auto parts maker Linamar estimated that both the U.S. and Canadian steel and aluminum tariffs will have minimal impact on the business, the Canadian Chamber of Commerce estimated that during previous steel and aluminum tariffs, product prices rose 1.6 for aluminum product prices and to 2.4 per cent for steel ones. To be safe, we’ve set aside two per cent. 

Cost of tariffs on materials: US$719.58

Step 2: Pay tariffs on assembled vehicles

While Canadian parts are mostly exempt from tariffs if they end up in an American-assembled car, they are tariffed 25 per cent if they end up in Canadian-made cars that are sold in the U.S. 

Stellantis’s Ostermann said cars imported from Canada and Mexico contain between 30 per cent to 50 per cent U.S. content. While Ostermann acknowledges this can vary by vehicle, we will use 50 per cent. 

Cost of tariffs on non-U.S. content: US$4,587.32

New production cost: US$41,285.90

Step 3: Add markups

Once again, in our scenario, the automaker and dealership seek to maintain their margins by applying markups to the post-tariff amount. 

Markups: US$4,612.87

New price: US$45,898.77

Step 4: Apply for remissions and relief

Under one of Trump’s executive orders, a vehicle subject to tariffs when it was imported from Canada may qualify for refunds on any “stacking” duties on its steel and aluminum content imported after March 4, and is expected to make the necessary updates to its system by May 16. 

However, the refund only applies to the tariffs imposed by the U.S. (The Canadian government has said it will consider refunding or waiving its retaliatory tariffs under “exceptional and compelling circumstances,” such as goods needed for first responders.)

For the sake of simplicity, let’s say about half of the cost of the steel and aluminum tariffs is waived on the U.S. side.

Cost: – US$359.79

Final price of Canadian-assembled SUV sold in U.S.: US$45,539

What if these vehicles were sold in Canada instead? 

The American-made vehicle would face the same cost increase for parts it imported to the U.S., plus a 25 per cent tariff on its U.S. content if it was sold in Canada. In our scenario, this would add US$6,825 to the cost of the car. The automaker could ask for that to be fully refunded, though, if it can prove that it is producing cars in Canada and hasn’t made cuts or paused work at Canadian factories.

The takeaway: Expect vehicle prices to rise even more than this, given the uncertainty around other costs (see our methodology). Our calculation is a simplified version of the one that’s confounding automakers around the world. We considered the at least five U.S. executive orders issued over the past three months and multiple customs notices and updates from both countries. But many of those rules remain unclear—so much so that at least six major automakers had to withdraw their earnings forecasts for the year during their recent quarterly reports.