The automotive sector remains at the center of North American trade debates, as the United States pushes to reshore production ahead of the upcoming CUSMA review — putting pressure on integrated supply chains across the region. Much of the debate centers on trade deficits in finished vehicles as a proxy for broader concerns about manufacturing loss and economic imbalance.
But this framing reflects only part of the picture.
Looking at finished vehicles alone suggests a deficit. Looking across the full automotive system — finished vehicles and chassis, bodies and trailers, and parts — reveals something different: when all three segments are considered together, the U.S. runs an overall automotive trade surplus with Canada.
This reflects how the sector actually operates: the North American automotive industry is organized as a deeply integrated manufacturing system, rather than along national lines, with production distributed across borders and components crossing multiple times before final assembly.
Canada’s role in this system is highly export-oriented, with over 77% of automotive output exported, primarily to the U.S. Yet its presence in the U.S. market remains relatively small. Canada accounts for only about 6% of U.S. automotive demand, and that share has been declining. At the same time, the U.S. maintains a substantial surplus in auto parts.
Focusing on finished vehicles alone therefore presents an incomplete and ultimately misleading view of the bilateral relationship. While the United States does run a significant automotive trade deficit globally, much of that deficit is driven by other countries, particularly Mexico, where production has expanded rapidly in recent decades. In contrast, the Canada–U.S. relationship is far more balanced and deeply integrated, shaped by decades of coordinated production under NAFTA and now CUSMA.
This has direct policy implications. Tariffs on finished vehicles and key inputs such as steel and aluminum have compounding effects. They raise costs across the entire production system, affecting investment, output, and employment. Recent evidence suggests that these pressures are already contributing to reduced output and, in some cases, job losses in U.S. manufacturing, despite the objective of reshoring production.
A longer-term structural shift is also evident. Canada’s share of global vehicle production has declined from about 5% in 1999 to roughly 1% today, reflecting both a gradual contraction in domestic assembly and the rapid growth of production in countries such as China, Mexico, and India.
The broader takeaway is clear. The U.S.–Canada auto relationship is one of integration and mutual dependence. Maintaining that integration, particularly under CUSMA, is critical to the competitiveness of North America’s automotive sector and to sustaining production, investment, and jobs on both sides of the border.
View the detailed citation list →
To learn more, explore our Canada-U.S. Trade and Investment in the Midst of a Trade War Infographic Series.
Citation: Mendoza, Nico (2026). Canada in the North American Automotive Industry (Julian Birkinshaw, Romel Mostafa & Zsofia Agoston, Eds). Lawrence National Centre Canadian-U.S. Trade and Investment Infographic Series 26403: Ivey Business School, Canada.
Generous support from the Power Corporation of Canada, Jack Lawrence Family and the Mitchell and Kathryn Baran Family Foundation, and funding by Ivey's Scotiabank Digital Banking Lab is gratefully acknowledged.