Toyota and Honda are in serious trouble! Trump's 50% Canadian car tariff risks forcing them to shut down production lines.

Toyota and Honda could be the two automakers hardest hit by Trump's plan to raise tariffs on Canadian car imports to 50%, analysts warn, potentially forcing them to shut down production lines in Canada.

On August 31, 2026, at 10:52 AM, Reuters reported that Toyota and Honda, two major Japanese automakers, could bear the brunt of the impact from U.S. President Donald Trump's plan to impose a 50% tariff on imported cars from Canada, even though the measure is intended to pressure the Canadian government.

The two Japanese companies together account for more than three-quarters of all cars produced in Canada, and analysts warn that if the tariffs go into effect as planned on January 1, both companies could be forced to shut down some of their production lines in Canada.

While the U.S. and Canada still have a chance to reach an agreement before the tariffs take effect, the timing of the tariff increase is extremely unfavorable for Japanese automakers, who are already facing fierce competition from cheap Chinese electric vehicles in key markets such as Southeast Asia, Europe, and Latin America.

Meanwhile, the United States remains the largest market for both Toyota and Honda, and is becoming increasingly important as Chinese competitor BYD has yet to enter the US market.

Data from Barclays analysts indicates that Canadian-made cars accounted for nearly a quarter of Honda's U.S. sales last year, while Toyota's share was approximately 17%, the highest among major automakers. This makes these two companies most vulnerable to the impact if Trump proceeds with raising tariffs from the current 25% to 50%.

Julie Boote, an automotive industry analyst at Pelham Smithers Associates in London, said that if they really wanted to cripple Canada's automotive industry, tariffs of that level were feasible. She estimated that both Toyota and Honda would likely have to close some of their vehicle assembly lines in Canada if the measures were implemented.

The Canadian automotive industry produces approximately 1.2 million vehicles annually and indirectly supports around 427,000 jobs. Key vehicles Toyota exports from Canada to the United States include the RAV4, while Honda exports the CR-V; both are among the best-selling SUVs in the US market.

This tariff plan is another example of Trump's trade policies that have forced the global automotive industry to adapt. For years, automakers from the US, Europe, Japan, and South Korea, along with their suppliers, had built interconnected production chains across North America, taking advantage of cross-border free trade agreements and lower labor costs in Mexico.

But that cost structure is changing dramatically, with U.S. tariffs already costing Toyota approximately 1.4 trillion yen, or $8.8 billion, in the past fiscal year.

Toyota is therefore increasing its production focus in the United States. The world's largest automaker announced last year plans to invest up to $10 billion over five years to expand its U.S. business, including building a new $3.6 billion plant in Texas and relocating Tacoma pickup truck production from its Baja California plant to this new facility.

For Honda, which is trying to revive its loss-making automotive business, the tax measures add further pressure on the company.

A senior Honda executive recently stated that the company may not proceed with construction of its eighth North American vehicle assembly plant if negotiations for a free trade agreement under the USMCA between the United States, Canada, and Mexico are not extended. This follows Trump's July 1st decision not to renew the agreement, necessitating annual reviews despite ongoing negotiations between the three countries.

Analysts believe that if the 50% tariff is actually implemented, Toyota and Honda are likely to try to redirect their Canadian-made vehicles to other markets and find ways to increase production from other sources to compensate for the shortfall in the US market.

However, such an action is not easy because cars produced for the U.S. are often designed to meet specific market demands and regulations, while factories in other countries may already be operating near full capacity.

Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory, stated that if this were to happen, it would represent a major shift from the past.

Two Japanese suppliers stated that they are currently unable to plan their response due to the uncertainty surrounding whether the tariffs will actually be implemented. One supplier's executive indicated that the company is trying not to overreact to the situation during this period of high uncertainty.

Reference: www.reuters.com

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