The Trade Zone

In this week’s edition: Is Stellantis the first domino to fall? And how Canada can strengthen its role in an REE-bifurcated world.

Is this the end of the auto pact?

By Jordan Brennan, RBC’s Head of Thought Leadership

Frustration is building in Canada’s auto sector. And concern.

Less than one week after U.S. Secretary of Commerce Howard Lutnick told a Canadian audience that “car assembly is going to be in America and there is nothing Canada can do about it,” Stellantis announced it will shift planned Jeep Compass production from Brampton to Belvidere, Illinois.

This looks like the fruits of America’s trade strategy, which aims to re-industrialize America through re-patriation of manufacturing capacity.

The fear: Stellantis is the first of many dominos to fall. 

Canada’s original managed trade in autos—the 1965 Auto Pact—tied duty-free access to production and value-added commitments in Canada, catalyzing continental supply-chain integration and shifting Canada from many low-volume domestic models to fewer, high volume North American models.

Today, Canada exports roughly nine-in-ten Canadian-made vehicles to the U.S. In any ordinary business, reliance on a single customer would be intolerable. But it appeared tenable through the Auto Pact and NAFTA eras. Today’s push to re-patriate Canadian auto jobs is a reversal of the 1965 logic. And it reminds us about our dangerous concentration risk.

In the face of the trade turmoil, Prime Minister Carney has pursued a strategy of patient diplomacy. What are Canada’s options if that doesn’t work?

The U.S. assembles 10-11 million vehicles annually, most of which are sold within the domestic market. Some 15% of American-made vehicles are exported. And in any given year, one-third of those exports are shipped to Canada, making us the largest export market. Closing the door on American imports would hit a channel equal to 7-10% of annual U.S. production.

Then there is the China angle. Beijing slapped a 75% provisional duty on Canadian canola in August. China’s ambassador has since proposed reciprocity—lifting canola and pork tariffs if Ottawa removes its 100% tariff on Chinese EV’s. Premiers Scott Moe and Wab Kinew have urged Ottawa to explore the proposal, which would intensify competition with Tesla, for example.

Other options include sectoral deals with Germany, Japan and South Korea. Think LNG offtake for defence procurement commitments—with auto-assembly mandates as part of the package negotiations.

While none of these options are great, Canada has leverage—as America’s top auto export market and a deeply integrated supplier base. This only works if used surgically. America’s real economic competition and strategic threat comes from China, not Canada. A grand bargain that locks in North American capacity and predictable market access remains the cleanest outcome. 

The week that was

• The Keystone XL pipeline is back in the conversation. This time at the negotiating table during the ongoing trade talks in Washington between the U.S. and Canada.

• Setting a “new roadmap” for Canada-India relations. Foreign Affairs Minister Anita Anand met Indian Prime Minister Narendra Modi after a two-year diplomatic rift.

• Canadian manufacturing sales fell 1% in August, while wholesale receipts dropped 1.2%, underscoring the impact of U.S. tariffs on key trade-exposed sectors.

• Canada added 28,000 new manufacturing jobs in September—the increase was concentrated in Ontario and Alberta and partly offset the 58,000 manufacturing jobs lost between January and August.

• Ikea responds to Trump’s new furniture tariffs with plans to boost U.S. production. Currently, only 15% of what the Swedish home furnishing giant sells in the U.S. is made there.

How Canada can strengthen its role in an REE-bifurcated world

By Vivan Sorab, RBC Thought Leadership’s Senior Manager of Clean Energy

As China escalates its Rare Earth Element (REE) advantage over the United States with enhanced export controls that could have widespread impact on critical defense and semiconductor supply chains, Canada must strengthen its role in the REE supply chain.

The challenge? Canada has the resources, the capital, and the intellectual property to start building a supply chain but needs to mobilize at speed.

Funding: The tools to build a REE supply chain exist. Canada classifies REEs among its priority 6 critical minerals (alongside lithium, graphite, nickel, cobalt, and copper) to receive funding under a $1.5 billion carveout from the Strategic Response Fund. While funding has flowed for REE mining (e.g., commitments to REE projects in Labrador), Canada must accelerate deployment to processing and manufacturing of key REE-based products like magnets.

Guarantee Demand: U.S. government-backed price floors and offtake agreements for REE products are helping make REE projects more attractive to the private sector. Similar approaches in Canada could help step up a domestic supply chain.

Build Domestic Processing Capability: Canada has REE intellectual property on home soil. Kingston-based Cyclic Materials, a REE magnet recycler, is building a $25 million Centre of Excellence and is partnering with France-based Solvay to supply recycled REE oxides for further processing. By growing processing capabilities at home, Canada can strengthen its position.