50% tariff threat could curb Canada's access to US market

KUALA LUMPUR, 25 AUGUST 2026 —

US Threat to Hike Tariffs on Canadian Cars, Steel to 50% by 2027 Raises Concerns Over Trade Flows

The proposed tariff hike would apply to four key sectors currently covered under Section 232: automobiles, auto parts, medium- and heavy-duty vehicles, and steel, including derivatives. These sectors account for 932 Canadian tariff lines and $83.5 billion (2024 value) of exports to the US, representing 21% of Canada’s total exports to its southern neighbour. If implemented, the average applied US tariff on Canadian goods would rise from the current 8.5% to 11.0% if relief under the US-Mexico-Canada Agreement (USMCA) is retained, or to 15.7% if such relief is removed.

The President’s post did not specify whether the tariff would apply to the full value of goods or only to non-US content, leaving critical details unresolved. Under current Section 232 measures, qualifying Canadian vehicles and parts benefit from USMCA relief, where only the non-US content is subject to the 25% tariff. The ambiguity has led analysts to model two scenarios: Scenario A, where the 50% tariff applies only to non-US content (retaining USMCA relief), and Scenario B, where the full 50% tariff applies to all goods in scope, eliminating USMCA exemptions.

Under Scenario A, the effective tariff on finished vehicles would double from 13.1% to 26.3%, contributing $4.3 billion of the projected $9.9 billion in additional duties. Steel derivatives, currently subject to rates of 25% or a 15% ceiling, would see their tariffs rise to 50%, adding $4.4 billion in duties. Auto parts would contribute only $0.7 billion, as qualifying parts remain exempt under USMCA. Scenario B, which removes USMCA relief, would result in higher costs: cars would face $12.0 billion in additional duties, auto parts $9.3 billion, and trucks $1.7 billion. Steel would add only $0.3 billion more than in Scenario A, as it has minimal USMCA relief to lose.

The potential impact on Malaysia and Southeast Asia remains indirect but noteworthy. Canada is a minor supplier of the targeted goods to the US compared to other regions, accounting for roughly one-eighth of US imports in these sectors. However, any disruption to North American supply chains could have ripple effects, particularly for Malaysian manufacturers with operations in Canada or the US. The automotive and steel industries in Malaysia, which export components and raw materials to global markets, may need to reassess their strategies if trade flows between Canada and the US are disrupted.

Stakeholders in the affected sectors have yet to publicly respond to the tariff threat, as the announcement lacks legal or procedural clarity. The Global Trade Alert, which published the analysis, noted that the statutory mechanism to impose a 50% Section 232 tariff on Canada alone is uncertain. Existing Section 232 investigations would require new proclamations to implement such a change, and the scope of the tariff—whether it applies to finished goods, parts, or derivatives—remains open to interpretation.

The broader implications for the USMCA framework are also unclear. If the US proceeds with the tariff hike while maintaining preferential tariff rates under USMCA, the move could undermine the agreement’s intent to facilitate seamless trade among member countries. Alternatively, if the US cancels USMCA relief, it could signal a further retreat from multilateral trade commitments, potentially prompting retaliatory measures from Canada.

For now, the automotive and steel industries in North America are bracing for uncertainty. Canadian automakers, which export $32.4 billion worth of finished vehicles to the US annually, would face the most immediate impact. The steel sector, already subject to 50% tariffs on primary products, would see additional costs on derivatives, further straining competitiveness. Auto parts manufacturers, particularly those supplying just-in-time production lines, could face disruptions if costs rise sharply.

Looking ahead, the timeline for implementation is tight. The tariff increase is slated to take effect in just over four months, leaving little room for negotiation or adjustment. Industry groups in Canada are expected to engage with US officials to seek clarity on the scope and legal basis of the tariff hike. Meanwhile, Malaysian exporters to North America will monitor developments closely, as any prolonged trade disruption could alter supply chain dynamics in the region.

The broader question remains whether this tariff threat is a negotiating tactic or a precursor to a more protectionist trade policy under the current US administration. Without further details on the legal framework or product scope, the full impact on trade flows and economic relations between the US and Canada—and by extension, Malaysia and Southeast Asia—remains uncertain.

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