Canada’s tariff on US vehicle imports has impacted vehicle sourcing

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Last year, Canada imposed a 25% automotive tariff on vehicles from the US, in retaliation for tariffs the US has imposed on Canada. This tariff has disrupted the country’s import-heavy automotive market, resulting in 98,000 fewer US-origin registrations through August 2026. This tariff has caused a change in the country’s import-heavy automotive market. While the US continues to be the top source of new light-vehicles in Canada, the change contributed to 98,000 fewer US-origin registrations through August 2026.

Canada’s light-vehicle registrations over the first eight months of 2026 have declined 2.0%, or about 27,100 units. Though US sourcing declined, the impact on overall sales has been modest.

Automakers made opportunistic adjustments across North American and global manufacturing to avoid the Canadian tariff. The trade policy has not driven increased investment in Canadian manufacturing, nor was it expected to do so directly or immediately.  OEMs leveraged existing multi-country footprints, navigated narrow policy carve-outs, or managed product lifecycles.

As trade tensions persist, these short-term adjustments highlight the limits of supply chain flexibility in a market that remains structurally dependent on the US for the foreseeable future.

Canada’s tariff hits a US-heavy supply base

Canadian light-vehicle sales are primarily imported, despite the country being home to plants from five automakers. The US is the primary source of Canadian-market vehicles, followed by Mexico, Japan, South Korea, Germany and mainland China.

From January-August 2026 Canada saw fewer US vehicle imports year-over-year, while registrations from other import countries increased.

South Korea: Hyundai leverages multi-country sourcing

South Korean imports increased due largely to sourcing adjustments from the Hyundai Motor Group to mitigate tariff exposure. The company increased Canadian supply of the Tucson from South Korea and Mexico and reduced sourcing from the US. This affected the Hyundai Santa Fe and Kia Sorento as well.

Not all nameplates can be re-routed, however. The Kia Telluride is produced only in the US for North America, and Canadian registrations dropped to only 62 units in 2026.

Additional notes for the region:

• General Motors vehicles imported from South Korea to Canada are not impacted by the new tariffs and do not have an alternative source of production.
• Kia added EV6 production in the US for North America and continues to supply Canada from the US plant instead of South Korea. Only 289 were registered in Canada through August 2026, a combination of cost impact as well as Canada’s lack of EV incentives for much of this year.
• All of Canada’s Genesis registrations were produced in South Korea, in part as Genesis does not have a large presence in US manufacturing yet.

China-sourced registrations increase with new quota scheme

China is another country from which imports have increased. Under Canada’s new quota system, a limited number of battery electric vehicles (BEVs) can be imported from China with a 6.1% tariff instead of the prior 100% tariff.

Over the first eight months of 2026, about 11,100 Telsa Model 3s registered in Canada were produced in China, compared with none in the same period of 2025.

While Mainland China automakers are exploring exports to Canada under the new quota situation, establishing distribution can still take some time.

Other China-sourced increases are not tied to BEV policy. The Lincoln Nautilus is imported from China; it is sold in internal combustion engine and hybrid configurations, so naturally avoids a BEV-based tariff.

Registrations from Japan increase but flexibility is limited

Registrations of vehicles produced in Japan increased by about 28,000 units, including vehicles from Toyota, Lexus, Mazda, Mitsubishi and Subaru. However, Japan’s increase also reflects portfolio mix and demand rather than tariff avoidance. Key models simply don’t have interchangeable production footprints.

Toyota’s North American manufacturing footprint builds vehicles designed for that market. As a result, the company has little flexibility in changing source quickly. RAV4s from Japan saw a small uptick in registrations but they remain a small portion of what is produced in the US or Canada.

Several high-volume Toyota models are produced only in the US for North America (Camry, Corolla Cross, Grand Highlander, Highlander, Sequoia, Sienna and Tundra), so registration changes were more indicative of market behavior than a sourcing pivot.

Subaru illustrates a more clear shift:

• Subaru produces the Outback in Japan, though Forester and Crosstrek are produced both in the US and Japan.
• Canadian registrations for those over the first half of 2026 is largely from Japan, while in the same period of 2025 they came in greater volume from the US.
• The Subaru Ascent is produced only in the US; Canadian registrations dropped to only 15 units.
• Subaru’s Impreza and BEVs are produced in Japan, unaffected by the US-Canada trade dynamics.

Nissan’s Murano, Frontier and Pathfinder are produced in the US for Canada, and Nissan only recently began to export to Canada again, and that at a carefully managed level.

Mitsubishi has no North American production, and is unaffected by this current trade situation, relative to Canadian registrations. The Mazda product affected is the US-produced CX-50. Canadian registrations dropped below 200 units, compared with 7,500 units last year.

Mexico’s role grows but mostly within existing footprints

Over the first eight months of 2026, Canadian light-vehicle registrations from Mexico increased by about 32,406 units. As noted, some of this is alternative sourcing of the Hyundai Tucson, but most Canadian vehicle registrations from Mexico are single sourced for North America if not globally.

For example, the Toyota Tacoma for North America is currently produced only in Mexico, and registrations in Canada improved by about 2,000 units this year. Ford’s registrations of the Mexico-produced C-segment Bronco Sport in Canada increased by about 5,000 units in 2026, no doubt partially caused by the end of production of the Ford Escape in the US. Bronco Sport is also single sourced from Mexico.

The Acura ADX and Honda HR-V are sourced from Mexico, avoiding need for tariff-related sourcing adjustments. Infiniti was winding down production of the QX50 and QX55; with the US tariffs on Mexico imports, Infiniti slowed imports to the US, enabling Canadian QX50 registrations to improve.

Jeep added production of the all-new Cherokee in Mexico, which lifted registrations of Jeeps produced in Mexico. The Nissan Kicks has a new generation, is single sourced for North America from Mexico, and Canadian registrations increased.

Canadian-produced vehicles more affected by product lifecycles

Canada’s automotive manufacturing base is far below what would be needed to support the overall light-vehicle market and is concentrated among a few automakers. It will take several years for changes in policy to affect Canadian vehicle manufacturing, and there have not yet been announcements of new manufacturing plans.

Through August 2026, registrations of Canadian-produced vehicles declined year-over-year, driven largely by lifecycle and operational factors:

• Toyota RAV4: Saw production slow on model-year changeover timing.
• Lexus NX: A new generation is being prepared but registrations declined slightly as Toyota’s luxury brand manages the lifecycle change.
• GM Silverado: GM’s production across North America has enabled registrations of Canadian-produced trucks to deviate by only about 200 units in 2026, compared with the first eight months of 2025.
• Stellantis: Chrysler minivans and Dodge Charger are single-sourced from a Canadian plant.
• Ford: Ended production of the Edge and Nautilus in Canada in 2024; the Oakville Assembly Plant is being retooled to build the Super Duty later in 2026. This year, Ford relies on US and Mexico for Canadian-market sourcing.

So far, opportunistic adjustments

Increased imports from Mexico, Japan, South Korea, Germany and China do not reflect significant changes to manufacturing investment. Several changes reflect product lifecycle actions as well as manufacturing decisions made prior to changes in tariffs and trade policy.

There are few examples of where an automaker had multiple production sources and was able to adjust to supplying Canada from outside the US. For the most part, imports from Germany are not replaceable by US production and the increase there would be a function of demand.

The September 2026 Mobility Global light-vehicle sales forecast reflects the likelihood that the US will continue to be the largest source of vehicle sales in Canada through 2031, followed by Mexico, Japan and South Korea. Despite the trade issues, Canada vehicle sourcing is likely to be relatively unchanged under current circumstances.

However, if Canada chooses to be more open to manufacturing investment by Chinese automakers, we could see more change in early 2030s. Potential changes in the United States Mexico Canada Trade Agreement could also have an impact. The trade war between the US and Canada has not yet resolved, and the US has threatened a 50% tariff on vehicles imported from Canada starting Jan 1, 2027. It is not clear if that will be imposed, or what Canada’s response might be.

The trade policy changes have potential to further disrupt the landscape. However, at about 1.9 million units registered annually and with no global OEM headquarters in the country, it is less likely that Canada’s vehicle manufacturing sector grows substantially.

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