Toyota and Honda may bear the cost of Trump’s Canada tariffs

• Canada's auto industry produces 1.2 million cars annually and supports 427,000 jobs indirectly; Toyota exports RAV4s and Honda exports CR-Vs from Canada, both top-selling U.S. SUVs
• Toyota already paid $8.8 billion in tariff costs last financial year and is investing up to $10 billion over five years to expand U.S. production, including a $3.6 billion Texas plant
• Analysts warn redirecting Canadian-built vehicles to other markets would be difficult as U.S.-bound cars are specifically tailored to American regulations, and other factories may be at capacity

Summary

Japanese automakers Toyota and Honda face significant exposure to proposed U.S. tariffs on Canadian car imports set to take effect January 1, 2026. The two companies produce over three-quarters of all vehicles manufactured in Canada, with Canadian-built cars representing nearly 24% of Honda's U.S. sales and 17% of Toyota's in the previous year—the highest among major automakers.

President Trump's plan would double existing tariffs from 25% to 50% on Canadian vehicles. Analysts warn this could force both automakers to shutter some Canadian production lines. Key exports include Toyota's RAV4 and Honda's CR-V, both top-selling SUVs in the American market.

Canada's auto industry produces approximately 1.2 million vehicles annually and supports around 427,000 jobs indirectly. The timing compounds pressure on Japanese manufacturers already struggling with competition from low-cost Chinese EVs in Southeast Asia, Europe, and Latin America, though the U.S. market remains protected from Chinese competitors like BYD.

Toyota has already incurred approximately $8.8 billion (1.4 trillion yen) in tariff costs during the last financial year. In response, the company is investing up to $10 billion over five years in U.S. operations, including a $3.6 billion Texas plant to relocate Tacoma pickup production from Mexico.

Honda, facing challenges in its struggling automotive division, stated it may not build an eighth North American plant unless USMCA free trade negotiations are extended. Trump ended automatic USMCA renewal on July 1, subjecting it to annual reviews.

Analysts note redirecting Canadian production to other markets would be extremely difficult, as U.S.-bound vehicles require market-specific customization and alternative facilities are near capacity.