Windsor’s recession fate tied to U.S. decision on auto parts tariffs

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As the Trump administration eyes new trade tariffs on auto parts, the Development Bank of Canada’s chief economist told a local audience that decision likely determines the difference between slow growth or a recession for the Windsor area.

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“A lot of our companies are in the parts business,” Pierre Cleroux told the audience gathered for the Windsor-Essex Regional Chamber of Commerce’s second annual economic forecast luncheon Monday at the Ciociaro Club.

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“The impact (of tariffs) is bigger in the region, but the good news is the tariff is only on cars so far and not parts,” he said.

But that could soon change as U.S. President Donald Trump is expected to reveal a U.S. auto parts policy by May 3 that could see new tariffs imposed on non-American automotive parts.

“In Windsor, it is going to be close to zero (GDP) growth. It all depends on how many tariffs are going to be imposed,” said Cleroux, who is also the DBC’s vice-president of research.

“Hopefully, they won’t impose the tariff on parts and create a recession.”

There was some potential good news on the auto parts front Monday as U.S. President Donald Trump publicly mused about another tariff pause. Trump said he was considering a temporary pause to give U.S. automakers more time to shift parts production to the U.S. from Canada and Mexico.

Though Cleroux said we’re in for a rough ride from U.S. tariffs, he expects Canada and Ontario will avoid slipping into a recession in 2025.

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“The tariffs and uncertainty will restrain growth to about .8 per cent for Canada, about half of what was previously forecast,” Cleroux said.

“We’re not expecting a recession. The economy is solid enough.”

Joining Cleroux for a panel discussion were Business Development Bank of Canada executive vice-president and CEO Veronique Dorval, Downtown Detroit Partnership CEO Eric Larson and Ontario Chamber of Commerce president Daniel Tisch.

Cleroux pointed out the impacts of tariffs are already evident in the loss of 33,000 jobs in Statistics Canada’s March Labour Force Survey.

Ontario’s GDP to grow a little more than zero per cent this year, he said, adding: “Ontario and Quebec are the provinces most affected by tariffs. Ontario’s exports, 25 per cent are to the auto industry.

“Windsor is the region with the most auto exposure.”

With 77 per cent of Canadian trade being with the U.S., Cleroux said this is a wake-up call that Canada must diversify its export markets.

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Also needed, he added, is removal of intra-provincial trade barriers, more support for local businesses, expansion of non-U.S. supply chains, improvement in productivity and creation of a friendlier business environment.

Detroit’s Larson shared that the pain of the tariff war is also being felt on the U.S. side of border. He said there’s growing concern among Americans over the uncertainty Trump is creating.

“There are 7,000 businesses in Detroit directly linked with Canada,” Larson said. “We can’t have the level of uncertainty this (U.S.) administration has created in the last three months.”

I feel like this is Canada’s 9/11 moment

Larson noted airline travel between Canada and the U.S. was down 40 per cent last month while tunnel traffic has significantly declined. Detroit’s retail sector is feeling the absence of its Canadian clientele.

“To be having this conversation in this moment of time when there’s so much opportunity is a bit disappointing,” said Larson, whose organization seeks to strengthen and support downtown Detroit through strategic initiatives and programs on both sides of the border.

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“I feel like this is Canada’s 9/11 moment for Canadians to rally.

“The encouraging part is there is a strategy if we stay together, stay united. This will come to an end.”

Larson said the auto sector in the Detroit area is as worried about the Trump administration’s ruling on auto parts tariffs as their Canadian cousins.

“There’s huge concern over our auto industry and manufacturing sector, especially in the Detroit market,” Larson said.

“You already have an industry that has been recovering from the slowdown and pullback on EVs (electric vehicles).

“Our hope is there’s a better understanding in Washington of the ripple effect that is now ripping through this economy and ultimately the manufacturing base of the U.S. and there’ll be an adjustment.

“There are already some signs of damage.”

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Jokingly referring to his appearance as part of an apology tour to Canadians, Larson said he is hopeful the great cost uncertainty generated last week in the stock and bond markets will mark the beginning of an exit from Trump’s tariff fixation.

“The concern we have goes beyond the impact of economics … (to) the social and cultural fabric that has been part of this region for so long,” Larson said.

“The economic impact, we can forge that again. This region matters how we move the global and knowledge economy forward.

“American foreign policy’s reputation regaining global credibility — I feel we’re looking at least two generations for that.”

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