A New Auto Pact to Navigate the Tariff Era

May 8, 2025 – As the Trump administration escalates waves of auto tariffs – reigniting trade tensions and upending cross-border supply chains – Canada must act decisively to defend its auto sector and reassert its place in North American manufacturing, according to a new report by the C.D. Howe Institute.

In “Back to the Future? Canada’s Auto Strategy in a New Tariff Era,” former Toyota Canada executive Stephen Beatty draws inspiration from the original 1965 Auto Pact and outlines a plan for Canada to negotiate a refreshed auto trade agreement with the United States and Mexico.

“Canada needs to use this window to build leverage and put a real plan on the table,” said Beatty. “We can’t leave the future of an auto sector that supports both sides of the border to the fate of another round of familiar but damaging tariffs.”

The report also highlights that Canada’s position in the North American auto industry has steadily weakened over recent years while Mexico grew its share and the US remained stable. While US output has remained stable and Mexico’s share has grown, Canada’s vehicle production has declined – even as the population has expanded – leading to job losses and weaker investment.

“GM’s recent layoffs in Oshawa highlight the current fragility of Canada’s auto sector,” said Beatty. “If we want to keep good jobs, maintain investments, and guard against the very real threat that this could all slip away, we need to rethink our strategy.”

The proposed strategy calls first for Canada to cut a deal with Washington – negotiating a new Auto Pact that ties expanded Canadian production to duty-free access for US vehicle imports. Under this framework, automakers boosting their manufacturing footprint in Canada would receive duty remission proportional to their investment, providing clear incentives to grow capacity north of the border.

Like the original 1965 Auto Pact, which linked duty relief directly to local vehicle production, this new proposal revives that proven mechanism to ensure import privileges flow to those who invest in domestic assembly. The blueprint also recommends harmonizing regulatory standards among Canada-United States-Mexico Agreement (CUSMA) partners, particularly on digital technology and security, to eventually phase out the current patchwork of retaliatory tariffs.

“Canada doesn’t need to start from scratch,” said Beatty. “It’s time to go back to the future with a new Auto Pact that protects good jobs and rebuilds North American collaboration on a more secure footing.”

Read the Full Report

For more information, contact: Stephen Beatty, former Vice-President, Corporate, Toyota Canada; Raquel Schneider, Communications Officer, C.D. Howe Institute, 416-479-9520 ext. 9520, rschneider@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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