U.S.-built vehicles have fallen to their smallest share of Canada's new-car market in years, as tariffs out of Washington reshape North American automotive trade—and American automakers appear to be bearing much of the cost.

Only 28.4% of new vehicles sold in Canada in the first half of 2026 built in the United States, down from 35.4% in the same period of 2025, according to JD Power Canada data. Between roughly 2021 and 2025, the U.S. share of Canada's new-vehicle market hovered near 40%. A decade ago, nearly half of the new cars hitting Canadian roads were American-built.

Analysts attribute the steep decline to a series of import taxes imposed on Canada over the past year and a half, including a 25% tariff on Canadian-made cars—a levy expected to double and extend to Canadian auto parts, steel, and vehicles on Jan. 1, 2027. Canada responded with countermeasures of its own, including retaliatory tariffs on American-made autos as well as steel and aluminum.

The stakes for the U.S. auto industry are considerable. Canada is the largest export market for American automakers—larger than the next 10 markets combined, according to a Royal Bank of Canada (RBC) analysis published last month. Bilateral auto trade topped $100 billion this year, and despite the policy friction, Canada remains America's largest auto market.

Yet analysts warn that recent trade policies are not only eroding that relationship but also raising the likelihood that import taxes intended to punish Canada are inflicting a larger toll on American automakers themselves.

"The data is irrefutable," Brian Kingston, CEO of the Canadian Vehicle Manufacturers' Association, which represents America's major automakers in Canada, told Automotive News Canada. "By virtually every metric—be it jobs, production, prices, tariff costs—every metric points to the same thing: U.S. trade policy is damaging the U.S. auto industry."

How tariffs have roiled the U.S. auto industry

At the root of the industry's tariff woes is a structural reality: no vehicle is built in just one country. Cars require thousands of components combined at facilities around the world, meaning U.S. auto companies remain reliant on products from other countries even for American-branded vehicles.

GM and Stellantis are among the companies reporting billions of dollars in tariff-related losses, and those increased costs are hitting consumers. Kelley Blue Book has estimated that tariffs would raise car prices by up to $6,000, which in turn increases auto taxes, financing, and insurance costs.

When President Donald Trump implemented the first auto tariffs in April 2025, economists also feared the trade restrictions would reduce vehicle production in the U.S., since so many "American-made" cars are actually assembled in Canada or Mexico before being finished in the United States. Fewer vehicles produced would mean lower demand for workers—a consequence that may already be materializing: the U.S. has shed roughly 75,000 manufacturing jobs since January 2025, including 25,900 in motor vehicles and parts production.

Reshoring plans could restore some manufacturing roles over the long term, however. Toyota has announced a $3.6 billion expansion of its San Antonio assembly plant, and Ford plans to move some production of Lincoln models from China to the U.S. in 2030—well after the Jan. 1, 2027 tariff escalation is expected to take effect.

To make matters worse for U.S. automakers, their shrinking market share in Canada has opened the door to competitors from Asia and Europe, where more integrated supply chains make it cheaper to build cars—and where tariffs are actually lower, Kingston told Fortune. Canada's imports from Japan rose from 13.7% in the first six months of 2025 to 16.6% in the same period this year, per JD Power data. South Korean imports jumped a percentage point to 15.6% over the same span, while European imports plateaued.

"We're in this odd situation where it is now more cost-effective to build a car in Japan or Germany, South Korea, Mexico, and bring it into North America than to build here in North America because of all of the mounting tariff costs," Kingston said. "That does not bode well for the future of North America's automotive industry."

The future of U.S.-Canadian trade

Continued strain on U.S.-Canadian relations could carry lasting consequences. For decades, the two countries have maintained close automotive trade ties, beginning with a 1965 pact that eliminated some import taxes and promised to consolidate the industry across borders. Those ties were strengthened by the 1994 North American Free Trade Agreement (NAFTA) and fortified further by the 2020 United States–Mexico–Canada Agreement (USMCA).

Trump, however, has declined to renew the USMCA, despite signing the legislation when the agreement was created six years ago. The agreement blunted some tariff impacts by providing carve-outs for auto parts, and its lapse would bring additional supply-chain uncertainty. The Tax Foundation has estimated that removing USMCA exemptions would increase taxes by $466 billion over the next decade—about $300 per U.S. household next year—and decrease U.S. output roughly 0.1%, equivalent to lost working hours from 95,000 full-time jobs.

With the Jan. 1, 2027 tariff escalation already on the calendar and the USMCA's future unresolved, the dispute now has a clear set of markers ahead: whether the expected doubling of the Canadian auto tariff takes effect on schedule, what happens to the USMCA carve-outs that have so far blunted costs, and how the market-share lines continue to move among the U.S., Japan, South Korea, and Europe.

The loss of trade diplomacy between the U.S. and Canada won't just have short-term economic impacts, Kingston argued. It could jeopardize a 60-year-old friendship that has buoyed industrial synergy.

"You shrink your market when you take protectionist policies, and you make your industries less competitive," Kingston said. "This isn't a winning formula for success, and the longer these tariffs are being in place, the more damage it's done."

This story was originally featured on Fortune.com.