Why Toyota and Honda would get hit hardest by Trump's Canadian auto tariffs

In something of an unexpected consequence, Japanese automakers Toyota ( TM ) and Honda ( HMC ) have more to lose than any US automaker from President Trump's threatened tariffs on Canadian-built vehicles.

In a note to clients, JPMorgan Securities' head of global auto equity research Jose Asumendi noted that Canadian-built vehicles accounted for nearly a quarter of Honda's US sales last year, and 17% of Toyota's.

Trump has threatened to impose 50% tariffs — double the current 25% rate — on autos, trucks, and car parts imported from Canada starting Jan. 1, 2027. The conventional thinking had been that Big Three automakers GM ( GM ), Ford ( F ), and Stellantis ( STLA ) would suffer the biggest financial hit from tariffs on Canadian goods.

But the two Japanese carmakers produce more than three-quarters of all cars made in Canada, per Reuters , and new tariffs could force them to shut some of their Canadian assembly lines because production would be economically unfeasible.

Higher tariffs would end up hitting two of America's bestselling SUVs, in addition to the two Japanese automakers' respective sales. Toyota builds some RAV4 SUVs in Canada, and Honda does the same with some CR-V SUVs, all of which are shipped to US dealers. Canada's auto industry produces approximately 1.2 million vehicles a year.

But tariff threats can go both ways. Honda said last week that it will reconsider US investment in a new plant if a formal US-Mexico-Canada Agreement is not ratified, meaning a key component of Trump's trade agenda — boosting US production — would be threatened.

Looking at the overall US economy on its own, the auto tariff hit "would be a rounding error, but this doesn't account for any retaliation by Canada, which would amplify the drag on US growth," wrote Bernard Yaros, lead US economist at Oxford Economics, in a note to clients .

Oxford Economics said it will revise its US tariff assumptions higher in its September baseline forecast after a breakdown in US-Canada trade talks over the weekend. The 50% Section 338 tariffs on select Canadian goods that have come into effect pushed the overall US effective tariff rate up 0.2 percentage points to 9.9%.

Canada has vowed to match the duties "dollar for dollar," a tit-for-tat escalation the firm said is poised to trim 0.1 percentage point off US GDP growth next year.

The auto tariffs would layer on top, potentially pushing the effective rate to either 10.1% or 10.4%, depending on whether exemptions for USMCA compliance are granted.

Car buyers have largely been spared so far. New-vehicle prices sit only about 0.4% above their pre-tariff trend, Oxford Economics estimates, as automakers and dealers have absorbed most of the earlier tariff costs. Full pass-through would have put prices nearly 5% above trend.

Pras Subramanian is Lead Auto Reporter for Yahoo Finance. You can follow him on X and on Instagram .