Canada remains a net importer of vehicles while Mexico cements its role as a major auto exporter, widening a structural gap that carries direct implications for trade negotiations across North America, according to BMO Capital Markets.
Canada produced 1.2 million vehicles over the past 12 months, compared with 3.9 million in Mexico, Chief Economist Douglas Porter wrote in a new note published on Thursday.
Domestic sales tell the opposite story: Canada sold more than 1.9 million vehicles over the same period, against about 1.6 million in Mexico.
“In other words, Canada is, by far, a net importer of vehicles globally, while Mexico is a huge net exporter,” Porter wrote.
The data underline the diverging trajectories of North America’s two smaller auto-producing economies at a moment when trade policy is reshaping the continent’s supply chains.
Reports indicate that Mexico and the United States may be close to a tariff and trade agreement, a development Porter flagged as worth watching for its impact on Mexico’s auto sector.
The next formal round is set for September 28 and 29 in Washington, and Reuters has reported that the arrangement on the table mirrors what nearly closed with Canada, a 15% baseline on vehicles.
The note also carries a pointed message for Ottawa.
Carney has said Washington’s refusal to extend tariff relief to medium- and heavy-duty trucks was among the reasons US-Canada trade talks collapsed in August.
Canadian-built vehicles still face the 25% tariff, applied only to non-US content. Washington had offered to cut the headline rate to 15%, an offer that lapsed with the talks.
Each side blames the other for the breakdown.
Commerce Secretary Howard Lutnick says Canada raised medium- and heavy-duty trucks only at four o’clock on the final Friday, and told CNBC that Ottawa “blew up” a nearly complete deal “for political reasons only.”
Canada’s chief negotiator Janice Charette says the issue was raised “on Monday, Tuesday, Wednesday and Thursday” as well, and that “Howard Lutnick was not at the negotiating table.”
A potential US-Mexico deal that eases barriers for Mexican-built vehicles would further disadvantage Canadian-assembled exports competing for the same American buyers.
Japan, the European Union and South Korea have already settled at 15% and Britain at 10%, so a car built in Germany or Korea now enters the United States on better terms than one built in Ontario.
BMO has Flagged the Problem Before
Thursday’s note extends a line of analysis BMO economists have pursued for more than seven months.
In February, Senior Economist Erik Johnson published a dedicated report titled “Recharging Canada’s Auto Industry,” which laid out the structural erosion in granular detail.
Johnson’s report showed Canada assembled 1.2 million vehicles in 2025, a 7.8% decline from 2024 and about 33% below pre-pandemic levels recorded in 2019.
US production stood at about 10.4 million units, a modest decline, while Mexican output held at about 3.9 million and continued to rise.
Johnson described the Canadian slump as a “structural break, not a cyclical wobble.”
Assembly lines in Brampton (Stellantis) and Ingersoll (GM), Ontario, sat mothballed at the time.
Johnson opened the report with a stark assessment of the province’s predicament.
“Something is rotten in the province of Ontario amid the mothballed assembly lines in Brampton and Ingersoll,” he wrote. “The implications for Canadian motor vehicle production are stark.”
The February report argued that Canada could no longer depend on the deeply integrated, tariff-free production model that had defined North American automaking for decades.
Johnson warned that a 25% tariff barrier undermined Canada’s position as an export-oriented assembly hub, and that the country’s domestic market was too small to sustain a dedicated electric vehicle assembly plant without access to American buyers.
“Canada can no longer rely on the traditional model of deeply integrated, tariff-free North American auto production,” Johnson wrote then.
Johnson pointed instead to what he called adjacent segments, battery materials, advanced components and Canada’s low-carbon electricity advantage, as the more probable growth areas — a shift away from vehicle assembly toward the upstream end of the supply chain.
EV Sales Exposed Incentive Gap
Johnson’s report also documented a sharp reversal in Canadian EV sales after federal incentives lapsed, with volumes swinging from a 32% year-over-year gain in January to a projected 35% decline for the full year.
Zero-emission sales growth swung from 32% year-on-year in January 2024 to a fall of more than 50% by mid-2025, and EV market share dropped from nearly 15% in 2024 to about 9% in 2025, erasing more than 90,000 units of expected demand.
He noted the pattern highlighted the degree to which EV adoption depended on upfront financial support.
Ottawa responded in early February with a policy package that included the repeal of Canada’s EV mandate, new purchase rebates, charging infrastructure investment, tax credits for manufacturers, and a limited opening for lower-tariff Chinese EVs.
The Electric Vehicle Availability Standard, which required all new light-duty sales to be zero-emission by 2035, was replaced with tailpipe emissions standards for model years 2027 to 2032 at double the stringency, aiming at roughly 75% EV adoption by 2035.
Johnson called the strategy a “meaningful recalibration” but concluded that domestic policy alone might not be enough.
“The forces reshaping Canada’s auto sector may be larger than domestic policy can handle,” he wrote then. “Unless US tariffs are eased or global competitive dynamics shift materially, Canadian auto production is unlikely to return to pre-2020 levels.”
BMO also identified a limitation the strategy does not resolve. None of the sub-C$50,000 models eligible for the new rebate are built in Canada, and the four plug-in models assembled domestically sit well above the cap, so a programme designed partly to support domestic manufacturing currently subsidises imports alone.
Tariff Threats
The tariff threats have since intensified.
Washington moved first in late July, threatening 50% tariffs on about US$20 billion of Canadian goods under Section 338 of the Tariff Act of 1930, which allows duties of up to 50% against countries deemed to discriminate against American commerce. A 30-day delay set a deadline of August 19, later extended by days, and it was that clock the negotiators were racing when talks collapsed on August 21.
The duties took effect the next day and apply even to CUSMA-compliant goods, though energy, potash, critical minerals, fish and goods already covered by Section 232 are exempt. Canada answered on September 8 with counter-tariffs of 15% to 50% across a comparable value of American goods.
Trump has since threatened a further 50% tariff on Canadian cars, trucks, auto parts and steel from January 1, well above the 25% in force. Nothing has been proclaimed.
Porter has said the rate increases markets are pricing for 2027 would disappear entirely if 50% auto and parts tariffs were implemented, and BMO estimates the existing American measures could subtract about half a percentage point from Canadian GDP growth.
Washington had offered to lower the auto tariff on Canadian-built vehicles to a headline 15%, with the effective rate falling further for vehicles with high US content.
Canada walked away rather than accept relief that excluded medium and heavy trucks, along with other late changes. Carney said the United States “asked too much and offered too little.”
Mexico’s Negotiating Position
Thursday’s note frames the Canada-Mexico production gap as more than a statistical curiosity.
Mexico’s 3.9-million-unit output and net-exporter status give the country a fundamentally different negotiating position with Washington. INEGI data show Mexico built 2.65 million light vehicles in the first eight months of this year and exported 2.25 million, 76.3% of them to the United States.
A US-Mexico deal that preserves or expands Mexican auto access to the American market would reinforce that advantage and leave Canada more isolated.
Canada’s auto manufacturing sector directly employs roughly 105,000 to 125,000 workers, according to the Canadian Vehicle Manufacturers’ Association, with the wider industry, including dealerships and repair, supporting more than 500,000 jobs nationally.
More than 90% of Canadian-assembled vehicles are exported to the United States.
Any sustained tariff disadvantage relative to Mexican-built vehicles risks accelerating the production decline BMO has tracked since early 2026.
Porter offered no forecast for a resolution.
The data, however, show a sector that continues to produce well below the volumes it sells — a gap that only trade relief or a fundamental rethinking of Canada’s auto strategy can close.
