North America’s auto industry is entering a period in which a few percentage points of tariff exposure could help determine where the next generation of vehicles gets built. Mexico is pressing Washington for lower duties on regionally produced automobiles while advancing bilateral trade negotiations that have moved further than comparable talks with Canada.
For Canada, the concern is not that its auto industry has already lost the factory competition. Ontario still has major assembly plants, a deep supplier network and billions of dollars in committed investment. The risk is that prolonged tariff uncertainty could gradually change where automakers assign new vehicles, battery projects and future production. With several companies making decisions that will shape their North American footprints into the 2030s, timing increasingly matters.
Mexico’s Tariff Proposal Could Change the Factory Math
Mexico has put forward a proposal designed to preserve more of the economic advantage traditionally associated with building vehicles inside North America. Under the approach reported in August, the United States would apply tariffs primarily to the portion of a vehicle originating outside North America, rather than treating Mexican and Canadian content the same as overseas content. Mexico has also pushed for the headline tariff applied to certain non-compliant North American vehicles to fall from 25% to roughly 5% or 10%.
No agreement has been reached, and Washington could reject or substantially alter the proposal. Still, even discussing a lower regional tariff matters because automobile factories operate on thin margins and enormous volumes. A difference of several percentage points can become significant when hundreds of thousands of vehicles are shipped across the U.S. border every year. Mexico’s objective is therefore bigger than reducing customs bills: it is attempting to preserve a cost advantage for producing vehicles and components inside the North American manufacturing system.
Mexico Has Built More Negotiating Momentum With Washington
Mexico entered the current negotiations early and has maintained a regular bilateral channel with the United States. U.S. Trade Representative Jamieson Greer and Mexican Economy Secretary Marcelo Ebrard conducted several negotiating rounds during the spring and summer, with automobiles, steel, aluminum, rules of origin and economic security repeatedly on the agenda. By September, Reuters reported that officials on both sides were working toward a possible bilateral understanding before the November U.S. midterm elections.
Canada’s situation has been markedly more difficult. Negotiations between Ottawa and Washington broke down during the summer, and Greer said in late September that the Trump administration did not see an urgent need to reach a Canadian agreement. That does not guarantee Mexico will secure better terms, nor does it mean Canada is permanently excluded from a North American arrangement. It does mean Mexico currently has an active negotiating process focused partly on manufacturing competitiveness while Canadian automakers continue operating with less certainty about their future access to the U.S. market.
Mexico Already Has Enormous Auto-Manufacturing Scale
Mexico is not negotiating from the position of a small automotive producer. INEGI, Mexico’s national statistics agency, recorded almost 3.95 million light vehicles produced in the country during 2025. Monthly export data indicate roughly 3.39 million vehicles were shipped abroad. Through August 2026, Mexican factories had produced another 2.65 million vehicles, keeping the country firmly among the largest automobile manufacturing centres in the Western Hemisphere.
Its importance becomes even clearer deeper in the supply chain. Research compiled by the Americas Society/Council of the Americas found that Mexico accounted for about 42% of imported automotive components entering the United States in 2025. That supplier density matters when companies decide where to add a transmission line, stamping operation or vehicle program. An assembly plant is rarely an isolated building; it relies on hundreds of component makers and logistics operations. Mexico’s existing manufacturing scale therefore gives it something difficult to reproduce quickly: an established ecosystem capable of supporting both high-volume vehicle assembly and the increasingly complicated North American parts network.
Canada Is Far More Exposed to the U.S. Market
Canada remains a significant vehicle producer, but its factories are unusually dependent on continued access to American consumers. Statistics Canada reported that more than 93% of Canadian motor-vehicle exports were destined for the United States in 2025. That concentration helped the Canadian industry thrive when vehicles moved relatively freely across the border, but it becomes a vulnerability when tariffs suddenly alter the economics of shipping Canadian-built models south.
The immediate concern is Washington’s auto tariff policy. Canadian-made vehicles have been facing a 25% U.S. tariff regime, and the Trump administration has said it intends to raise the rate affecting Canadian vehicles, parts and trucks to 50% beginning January 1, 2027 if the dispute remains unresolved. Canada produced roughly 1.2 million vehicles in 2025, with Honda and Toyota responsible for more than three-quarters of output. Canadian-built vehicles represented about 24% of Honda’s U.S. sales and 17% of Toyota’s, according to figures cited by Reuters, showing how deeply Canadian factories remain tied to American showrooms.
Brampton Shows How Quickly Product Decisions Can Shift
The Stellantis assembly plant in Brampton, Ontario has become one of the clearest examples of what factory uncertainty looks like on the ground. More than 2,200 workers had been associated with the facility before it was idled for retooling. The plant had been expected to produce a new generation of the Jeep Compass, but retooling was paused and Stellantis eventually shifted future Compass production to Illinois as its North American manufacturing strategy changed amid new tariffs and market conditions.
The situation progressed further in 2026. Stellantis acknowledged discussions involving a possible sale of the Brampton operation, and in September it signed a memorandum of understanding with Canadian defence manufacturer Roshel concerning a potential transaction. A final sale was not completed at the time, so the plant’s ultimate future remains unsettled. Even so, Brampton illustrates why Canada is focused so heavily on product mandates. Plants can survive for decades once a successful vehicle program is secured, but an idled factory without a confirmed replacement model can quickly move from temporary uncertainty to a much more difficult industrial-policy problem.
GM Shows Canada Can Still Win New Production
Canada’s position is not defined solely by plant delays or lost products. General Motors provided an important counterexample when Canadian workers ratified agreements supporting more than C$1 billion in new and previously committed investment. Among the commitments is C$144 million to bring next-generation heavy-duty GMC Sierra production to Oshawa, along with C$215 million for next-generation transmission production in St. Catharines beginning later in the decade.
The agreements also incorporated a previously announced C$691 million commitment supporting sixth-generation V8 engine manufacturing in St. Catharines. That matters because automakers do not commit hundreds of millions of dollars to factories they consider immediately obsolete. Oshawa’s additional truck production demonstrates that Canadian facilities can still secure valuable programs even in a difficult trade environment. At the same time, GM’s CAMI plant in Ingersoll has faced extended idling and layoffs. The contrast captures the broader Canadian challenge: the country retains skilled workers and competitive factories, but individual plants increasingly need concrete product commitments to remain secure through a period of rapidly changing tariffs and vehicle strategies.
Canada’s EV Investment Boom Has Lost Some Momentum
Only a few years ago, Ontario appeared positioned for an extraordinary wave of battery and electric-vehicle investment. Some of those projects continue, but important timelines have slipped. Honda indefinitely suspended an approximately C$15-billion Canadian EV and battery manufacturing plan—roughly US$11 billion—after reassessing its global electric-vehicle strategy. The decision came as Honda recorded large EV-related charges and shifted greater attention toward hybrids.
Volkswagen’s PowerCo project in St. Thomas remains alive, but its timetable has also changed. In September, PowerCo said production at the approximately C$7-billion battery plant is now expected to begin in 2029, two years later than originally planned. Importantly, the project has not been cancelled: EllisDon was appointed general contractor and construction is continuing. PowerCo said the revised schedule reflects changing EV demand, technology and the opportunity to introduce next-generation battery cells. Together, Honda and PowerCo show that not every Canadian setback is caused by tariffs, but trade uncertainty is arriving at the same time automakers are already reconsidering billions of dollars in electrification spending.
The Rules of Origin May Matter as Much as the Tariff Rate
The next North American auto framework will not be determined only by whether tariffs are 25%, 10% or zero. Rules governing where vehicle components originate could prove equally important. Under the existing USMCA, passenger vehicles and light trucks generally need 75% North American regional value content to qualify for preferential treatment, compared with 62.5% under NAFTA.
The Trump administration has proposed significantly tougher requirements during negotiations, including raising the regional threshold to 82% and requiring at least 50% of a vehicle’s value to originate specifically in the United States. Those proposals have not become final rules, and Mexico has resisted requirements it argues would make regional production less competitive. For Canada, a U.S.-specific requirement could be particularly important. Canadian factories were built around a system in which Canadian, American and Mexican components collectively counted toward regional targets. A future system that gives materially greater value to U.S.-made components could change sourcing decisions even if final assembly remains in Ontario.
Tariffs Are Only One Part of Canada’s Competitiveness Problem
Factories are rarely assigned purely on the basis of one tariff rate. Automakers compare labour, productivity, energy, transportation, supplier availability, exchange rates, incentives, engineering capacity and long-term policy stability. Canada retains important strengths, including experienced automotive workers, relatively clean electricity and a Windsor-to-Oshawa manufacturing corridor supported by hundreds of parts, tooling and technology companies.
The more difficult issue is investment certainty. RBC Thought Leadership estimates the Canadian auto industry employs about 125,000 people directly within the sector and represents roughly 10% of Canadian exports. Its 2026 analysis outlined dramatically different long-term outcomes depending on market access, trade rules and investment. Canadian manufacturing capital spending is also facing broader pressure: C.D. Howe Institute analysis of Statistics Canada investment intentions found manufacturing capital expenditure was expected to decline for a second consecutive year in 2026. That does not mean Mexico automatically wins every new factory. It means predictable access to the enormous U.S. market becomes increasingly valuable when executives are choosing among otherwise competitive locations.
The Most Important Factory Decisions Are Still Ahead
Canada therefore has time to stabilize its position, but some major investment clocks are already running. Honda has said its North American manufacturing network is approaching capacity and that the company could need another assembly plant operating around 2030. Executive Vice President Noriya Kaihara said in August that a decision would likely be required within one or two years and warned that the company could change direction if the North American trade framework remained unresolved.
That is the larger significance of Mexico’s tariff push. The contest is not simply about protecting vehicles rolling off assembly lines today. It is about determining where automakers place programs that may employ thousands of people throughout the 2030s. Canada still has major advantages, demonstrated by GM’s recent Ontario commitments and the continuing PowerCo project. Mexico, however, combines enormous production scale with an active negotiating track and a proposal specifically designed to reduce tariff exposure. If that produces materially more predictable conditions than Canadian factories receive, investment committees could gradually respond—even without a dramatic announcement that Canada has suddenly lost the North American auto race.
