Why US Automakers Make Vehicles in Canada

[douglas9]

President Trump is blowing up the global economy with threats of extortionate tariffs being placed on imports from foreign countries to the US. He sometimes makes the ludicrous claim as in the case of Canada, that it is because Canada “isn’t doing anything” to stop the fentanyl that is allegedly “pouring across the border” into the US with no effort made to stop it. More often, he accuses Canada of unfair trade policies.

He claims for example that Canada is shipping Canadian-made GM and Ford vehicles made in Canada into the US, tariff free and that these should be made in the US by American workers, at the same time that he complains Canada is dumping cheap steel into the US, where much of it is used to make cars! (How vile is that?). In both cases his solution is to slap the Canadian imports with a 25% tariff penalty.

The thing is, there is a reason so many US cars get built in Canada, and probably why so much of the steel used in the US is produced in Canada and sold to US manufacturers. And that reason is not that Canadian workers make less than workers in the US or that Canadian automakers and steel plants are subsidized by Canada. In fact Canadian workers do quite well, because they have much stronger unions than does the US. (In fact the Canadian chapter of the United Auto Workers split off from their American UAW parent in 1985 largely because its leaders and members correctly felt that the US parent union wasn’t militant enough in its bargaining.)

No, the reason a lot of auto and truck manufacturing was shifted away from Michigan and other parts of the US to Canada was because of the enormous cost per vehicle the US car companies were paying for health care coverage for their workers and dependents — which is now adding a production cost of thousands of dollars per vehicle, and that’s not counting the added cost of retiree health care. Canadian companies’ employee health care costs are a pittance compared to at US companies.

https://thiscantbehappening.substack.com/p/why-us-automakers-make-vehicles-and

[everyonematters]

1. How about that. The Canadian manufacturers don't have to worry about health care.

[Bernardo de La Paz]

3. US healthcare costs twice as much per capita and life expectancy is shorter unless you're a Congress critter. . . nt

[MichMan]

2. Not quite that simple. The Canada-US Auto Pact of 1965 was enacted prior to Canada universal health care.

Canadian production was initially located there because of Candian tariffs prior to the 1965 Canada-US Auto Pact. Health care costs are certainly an advantage, however I believe low wages are the main factor towards manufacturing in Mexico and China.

In 1964, Canada had a roughly $600-million auto trade deficit with the United States. Canada was producing about 7 per cent of Canada/US auto output, but accounted for less than 1 per cent of US sales around this time.

The fundamental problem was that Canada’s auto industry was highly inefficient. The subsidiaries of US companies, operating in Canada behind a high tariff wall, assembled a wide range of different models in Canada at production levels insufficient to achieve the economies of scale needed for commercial success. They had been set up as branch plants not only for the Canadian market, but to take advantage of earlier trade preferences with the British Commonwealth, which had by then lost much of their value. There was no incentive to invest in Canada. Productivity was about 60–65 per cent of US levels, and industry wages were about 70 per cent of US levels. Meanwhile, Canadian consumers paid much higher prices for automobiles and had less choice than their American neighbours.

Fearful of a declining auto industry and worried about the trade deficit, the government of Prime Minister John Diefenbaker had in 1960 appointed Vincent Bladen, a University of Toronto economist, to study the industry. In his report, Bladen rejected free trade as a solution because, he argued, Canadian industry was unprepared and would be much diminished. He also rejected higher tariffs as counterproductive. Instead, Bladen proposed measures to increase Canadian content in auto products by allowing companies to import vehicles and parts duty-free, provided they met Canadian content requirements.

After intensive diplomatic negotiations through the summer and fall of 1964, the two countries reached a compromise agreement. The resulting Auto Pact was a managed trade agreement that limited which companies could benefit, and imposed ongoing conditions or safeguards to ensure growth of the industry in Canada. The Americans had sought a free trade agreement, but Canada wanted an agreement with safeguards. A pure free trade agreement, Canada argued, would lead to a much diminished auto industry in Canada since all the key investment and production decisions would be made in the United States.

https://www.thecanadianencyclopedia.ca/en/article/canada-us-automotive-products-agreement#:~:text=The%20Automotive%20Products%20Trade%20Agreement%20of%201965%2C%20better,auto%20industries%20in%20a%20shared%20North%20American%20market.

[Bernardo de La Paz]

4. Thank you for good background. . . . nt

[everyonematters]

8. Ok, it is not the whole answer, but it is obviously part of it.

[MichMan]

5. Let's assume that the US adopted the Canadian model

Canadians pay a 15% combination Goods and Services / Harmonized Sales Tax. (a little less in Ontario)

If that was enacted in the US, I don't believe that the US auto manufacturers would pocket the money they are currently paying for health insurance costs for their employees. There is no way that the UAW would accept being hit with much higher sales taxes to pay for something they already have. Nearly certain they would demand that their base wages are increased by a like amount to make them whole.

[Auggie]

6. I don't believe it's about tariffs. It's about creating economic collapse: Shock Doctrine stuff.

Cause a crisis, then "solve" it with pro-corporate policies as a panicked electorate welcomes action of any kind ... tax cuts for business, trickle-down economics, and drastic cuts to social spending.

[doc03]

7. The same as Putin, Trump does not want a democracy next door, Trump's goal is

get a right-wing government in Canada. Same as all dictators.

[pat_k]

9. Yup!

[Passages]

10. Lessons never learned and why is that?

Although to be fair, it is also the Democratic Party leadership’s fault, since they and the neoliberal Democrats in Congress as well as Presidents Obama and Biden had multiple chances when they had control of both House and Senate to adopt the Medicare for All bill pushed by Vermont Senator Bernie Sanders, but the majority of that party too prefer the huge campaign contributions the party and its candidates receive from the health care industry, which loathes the idea of socialized medicine.

Here’s a suggestion: If you have an Uncle Bob or Aunt Julie who is a Trumper or, or a friend at work who sports a red MAGA baseball cap, send them a link to this article and then talk to them about it. Tell friends who don’t like Trump about it too, and send them to this site, or write a letter to your local paper and make the case. We need publicly funded health care, not tariffs.



Indeed.