Toyota and Honda Face Factory Closures Under Proposed 50 per Cent US Tariff

Toyota and Honda face potential plant closures in Canada after US President Donald Trump proposed doubling import tariffs on Canadian-built vehicles to 50 per cent.

The two Japanese manufacturers assemble more than three-quarters of all light vehicles produced in Canada, making them the most exposed automakers to the cross-border levy.

Canadian shipments represent 24 per cent of Honda’s US sales volume and 17 per cent of Toyota’s deliveries, according to Barclays data. Key export models include the Toyota RAV4 and the Honda CR-V, two of the top-selling sport utility vehicles in the American market. If implemented on Jan 1, 2027, the duties would force both companies to alter production networks that took decades to build.

Rebuilding the North American Footprint

Existing US tariffs cost Toyota approximately 1.4 trillion yen in the 2025 financial year. In response, the group committed up to $10 billion over five years to expand its manufacturing footprint inside the US, including a $3.6 billion assembly facility in Texas that will take over production of the Tacoma pickup truck from Mexico.

Honda faces a steeper hurdle because its automotive unit is still working through a turnaround plan. The company has put plans for an eighth North American assembly facility on hold while talks over the US-Mexico-Canada Agreement remain unresolved. South Korea’s Hyundai reported similar delays to its regional capital spending in 2025.

Squeezed Between US Tariffs and Chinese EVs

The border friction hits Japanese manufacturers at a weak point in their global operations. Chinese electric vehicle makers led by BYD have eroded market share for Japanese brands across Southeast Asia, Australia and Latin America, leaving North America as the primary profit engine for both Toyota and Honda. With Chinese brands barred from the US market, defending North American market share is essential for Tokyo’s automotive sector.

Redirecting Canadian output to alternative export destinations presents structural problems. Assembly lines in Ontario build vehicles configured specifically for US safety and emissions rules, while alternative factories across the Pacific already run close to maximum capacity.

Negotiations over the USMCA framework continue ahead of the planned Jan 1, 2027 tariff implementation date, with Japanese parts suppliers holding off on capital allocation until trade terms are finalized.