Only 28.4% of new vehicle sales in Canada in the first half of 2026 were U.S.-built, down from 35.4% in the first half of 2025, according to JD Power Canada data. From about 2021 to 2025, the U.S. market share of new vehicles in Canada was roughly 40%.

Auto analysts blame the steep decline on a series of import taxes placed on Canada over the last year and a half, which included a 25% tariff on Canadian-made cars, a levy expected to double and apply to Canadian auto parts, steel, and vehicles on Jan. 1, 2027. Canada imposed countermeasures, including retaliatory tariffs on American-make autos, as well as on steel and aluminum. 

The U.S. auto industry relies heavily on Canada, which is the largest export market for American auto markets—larger than the next 10 markets combined, according to a Royal Bank of Canada (RBC) analysis published last month. Auto trade between the two countries has topped $100 billion this year, and despite the speed bumps in trade policy, Canada remains America’s largest auto market.

But recent trade policies are not only eroding this relationship, analysts warn, but increasing the likelihood the import taxes meant to punish Canada are actually having a larger adverse impact on American automakers.

“The data is irrefutable,” Brian Kingston, CEO of the Canadian Vehicle Manufacturers’ Association which represents American’s major automakers in Canada, told Automotive News Canada. “By virtually every metric—be it jobs, production, prices, tariff costs—every metric points to the same thing: U.S. trade policy is damaging the U.S. auto industry.”

How tariffs have roiled the U.S. auto industry

At the foundation of the auto industry’s tariff woes is the fact that no vehicle is built in just one country, as they require thousands of components, which are combined in various facilities all around the world. That means U.S. auto companies are still reliant on products from other countries, even for American cars.

While companies like GM and Stellantis reported billions of dollars in losses from tariffs, those increased costs are hitting consumers. Kelley Blue Book estimated tariffs would increase car prices by up to $6,000, which subsequently increases auto taxes, financing, and insurance costs.

When President Donald Trump implemented the first auto tariffs in April 2025, economists also feared the trade restrictions would actually lead to fewer vehicles being produced in the U.S., as a result of so many “American-made” cars actually being assembled in Canada or Mexico before they are finished in the U.S. With fewer cars produced, demand for workers would decrease, a consequence that may already be coming to fruition: There are about 75,000 fewer manufacturing jobs in the U.S. since January 2025, including 25,900 fewer in motor vehicles and parts production. To be sure, reshoring plans, such as Toyota’s announced $3.6 billion San Antonio assembly plant and Ford’s plans to move some production of Lincoln models from China to the U.S. in 2030, could restore some manufacturing roles in the long term.

To make matters worse for U.S. automakers, their shrinking market share in Canada has come at the benefit of competitors in Asia and Europe, where it is cheaper to build cars because of more integrated supply chains—and tariffs are actually lower, Kingston told Fortune. For example, Canada’s imports from Japan have increased from 13.7% in the first six months of 2025 to 16.6% in the same period this year, per JD Power data. South Korean imports jumped a percentage point to 15.6% over the same period, and European imports plateaued.

“We’re in this odd situation where it is now more cost-effective to build a car in Japan or Germany, South Korea, Mexico, and bring it into North America than to build here in North America because of all of the mounting tariff costs,” Kingston said. “That does not bode well for the future of North America’s automotive industry.”

The future of U.S.-Canadian trade

Continued strain on U.S.-Canadian relationships could have lasting consequences for years to come. For decades, the U.S. and Canada have shared a close trade relationship in the automotive industry, signing a pact in 1965 that eliminated some import taxes and promised to consolidate the industry across borders. Those ties were strengthened with the 1994 North American Free Trade Agreement (NAFTA), and fortified still with the 2020 United States Mexico Canada Agreement (USMCA).

However, Trump has declined to renew the USMCA, despite signing the legislation upon the agreement’s creation six years ago. The agreement blunted some tariff impacts by providing carve-outs for auto parts, and its lapse would mount additional supply chain uncertainty. The Tax Foundation estimated removing USMCA exemptions would increase taxes by $466 billion over the next decade, about $300 per U.S. household next year, and decrease U.S. output by about 0.1%, equating to lost working hours of 95,000 full-time jobs. 

The loss of trade diplomacy between the U.S. and Canada won’t just have short-term economic impacts, Kingston argued. It could jeopardize a 60-year-old friendship that buoyed industrial synergy.

“You shrink your market when you take protectionist policies, and you make your industries less competitive,” Kingston said. “This isn’t a winning formula for success, and the longer these tariffs are being in place, the more damage it’s done.”