Volkswagen has dodged the tariff and trade dispute between Canada and the U.S. and its manufacturing plant now being built in St. Thomas will proceed full speed ahead, said the city’s economic develop

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Volkswagen has dodged the tariff and trade dispute between Canada and the U.S. and its manufacturing plant being built in St. Thomas will proceed full speed ahead, the city’s economic development boss says.

Electric-vehicle batteries made in St. Thomas will be tariff-free under recent changes to the trade policy announced by the U.S., auto industry officials say.

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St Thomas Mayor Joe Preston and Sean Dyke, economic development chief executive, travelled recently to Germany to meet with officials from PowerCo, the VW subsidiary that makes electric vehicle batteries, and were told the company remains committed to the $7-billion St. Thomas plant that’s under construction.

“This is excellent news. They’re very positive about St. Thomas. They’re moving forward. In fact, they will pour a foundation in about two months,” Dyke said.

During the meeting, Volkswagen revealed it also sees the St. Thomas plant selling batteries into European markets, as well as feeding Volkswagen assembly plants in Tennessee and South Carolina, when production begins late in 2027 or early 2028.

“There’s potential for that, but we’re still a few years away. A lot can change,” Dyke said. “But there’s no pause happening. After the foundation is poured, the steel will go up. The community is very excited.”

Volkswagen already has hired about 200 office staff in St. Thomas for the new plant.  

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Dyke also has been busy meeting with potential suppliers to the PowerCo plant, he added. “We are having discussions.”

The U.S. has imposed tariffs on some Canadian goods and vehicles entering the United States, including aluminum, metal and some auto parts. In turn, Canada has imposed counter-tariffs on many U.S. goods imported into Canada.

The tariffs charged on Canadian goods exported to the U.S. range up to 25 per cent. But on May 3, the U.S. announced parts that are compliant with the existing free trade agreement between Canada, Mexico and the U.S. – called CUSMA – are tariff-free.

Volkswagen’s batteries will be tariff-free given the high local content they will contain. The three countries are expected to renegotiate the trade deal this summer.

“Parts from Canada and the U.S are not tariffed as long as they are USMCA compliant,” said David Adams, chief executive of industry advocacy group Global Automakers of Canada.

“The criteria for battery production makes them duty free; all of the materials and critical minerals and parts that make up a battery are largely free trade compliant,” he said. “The entire auto industry is on tenterhooks, but the reality is the entire industry is fully committed to an electrified future. There is no going back.

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“Any time there’s a ripple it gives people cause for concern. The reality is this investment by VW is moving forward.”

There are three main requirements for an automotive part to be tariff free:

• Contains 65 to 75 per cent “localized value,” meaning North American content.
•  70 per cent of the steel and aluminum used has to come from North America. 
• At least 40 per cent of the manufacturing labour must have a wage rate of more than $16 an hour.

The St. Thomas officials were in Germany early in April, also travelling with Ontario government officials on a trade mission.

On a related note, this week Statistics Canada issued a report on trade between Canada and the U.S. since the dispute began. Exports to the United States are down about 6.6 per cent, but exports to other countries increased 24.8 per cent.

Imports from the United States to Canada fell 2.9 per cent.  

In 2023, more than 700 businesses in London exported about $7.8 billion worth of goods to the United States, mostly in automotive and manufacturing but also in food and agriculture, Statistics Canada figures show.

ndebono@postmedia.com

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