Posted originally on Aug 21, 2025 by Martin Armstrong |  

Canada is turning to Mexico for automobiles amid tariffs, with imports from Mexico surpassing those from the US for the first time in 30 years this June. Approximately C$1.08 billion in passenger vehicles were sent from Mexico to Canada compared to C$950 million from the US during that same time period, as noted by Statistics Canada.

All vehicle imports to Canada rose by 6.9% in June after two consecutive months of contraction. Imports of parts and engines, however, declined by 4.8% as motor vehicle production in Canada is beginning to wane. As for imports, Canada was the top purchaser of US vehicles in 2024.

Canada’s auto manufacturing industry is directly tied to the US as the majority of factories are producing American-owned brands such as Ford and General Motors. In fact, Canada was once the world’s top auto exporter. Auto exports from Canada fell 14% in 2024 on an annualized basis, although total vehicle sales were up 8.2% at 1.86 million units. The auto sector contributed C$16.5 billion to Canadian GDP in 2024 while generating C$46.5 billion in exports. The broader auto sector in Canada accounted for 4% of total GDP in 2024 at C$94 billion.

Roughly 603,500 Canadians are employed through the auto industry, with 130,000 workers specifically involved in manufacturing. Auto manufacturing was off to a strong start in 2025 due to pre-tariff panic spending and Canada, but sales have slowed in recent months with June’s data showing a 7.5% monthly decrease in annualized sales.

The demand for electric vehicles is also waning. Zero-emission vehicles (ZEV) sales fell 35.2% in June on a yearly basis, although ZEVs compose only 7.9% of all vehicle sales. Canada is upholding its net-zero mandate, requiring all new vehicle sales to be ZEV by 2035, but consumers do not want to make the switch yet.

The United States-Mexico-Canada Agreement (USMCA, also called CUSMA in Canada) exempts all autos that comply with the agreement from the 25% tariff. USMCA-compliant imports are levied only on their non-US components. Canada implemented a retaliatory 25% tariff on US autos and all of these levies are disrupting trade and increasing costs temporarily. Canada also implemented a $2 billion remission program to supplement Canadian automakers during these volatile times.  Will Canada continue to purchase more from Mexico than the US or will this be a temporary adjustment amid the tariff games?