The one month exemption is for cars and trucks that comply with USMCA’s content rules.
President Donald Trump will exempt automakers from his punishing 25-percent tariffs on Canada and Mexico for one month as long as they comply with the terms of an existing free trade agreement, the White House has said.
The announcement on Wednesday came after Trump spoke with the chief executive officers of the three big carmakers, Ford, GM and Stellantis.
Auto stocks rose on the news, with General Motors up 5.3 percent and Ford up 4.1 percent.
Trump’s press secretary said on Wednesday that the president is open to hearing about additional exemptions, but Canadian Prime Minister Justin Trudeau is not willing to lift Canada’s retaliatory tariffs if Trump leaves any tariffs on Canada, The Associated Press reported citing a senior government official who spoke on condition of anonymity as he was not authorised to speak to the press.
Trump’s tariffs pose extreme difficulties for carmakers, which produce vehicles in all three countries and often ship parts across North American borders multiple times as they get built up into systems and finished vehicles.
Ontario Premier Doug Ford earlier told The Associated Press the auto sector in the US and Canada would last approximately 10 days before they start shutting down the assembly lines in the US and Ontario.
“People are going to lose their jobs,” he said.
A one-month exemption for cars and trucks that comply with the US-Mexico-Canada Agreement‘s complex content rules, as Trump has outlined, would be a boon for Ford, GM and Stellantis because they comply with the USMCA’s complex rules that require vehicles to have 75 percent North American content to get duty-free access to the US market.
The rules also require 40 percent of a passenger car’s content to be manufactured in the US or Canada, based on a list of “core parts” including engines, transmissions, body panels and chassis components. The threshold for pick-up trucks is 45 percent.
Automakers have expressed support for boosting US investment but want certainty over tariff policies as well as on vehicle emissions rules before making dramatic changes, two industry sources told Reuters news agency.
Trump also might eliminate the 10 percent tariff on Canadian energy imports, such as crude oil and petrol, which comply with the USMCA rules of origin, Reuters reported citing a source familiar with the discussions.
Trade tensions
The tariffs threaten to derail Canada’s fledgling economic recovery and could trigger a recession, as the country sends the US 75 percent of its exports and gets from it a third of all imports.
Trade tensions also already may be hurting the US. New data released on Wednesday showed slowing payroll growth, as well as lower wage growth for workers who switch jobs, with uncertainty around Trump’s policies a likely factor. The dollar hit three-month lows on Wednesday, and US stock indices have fallen steadily this week. The Nasdaq has fallen 9 percent since February 20.
Trump has also imposed an extra 10-percent duty on Chinese goods.
An exemption also would benefit some foreign brand carmakers with large US production footprints, including Honda and Toyota, but some competitors that don’t comply would have to pay the full 25-percent US tariffs.
On April 2, Trump plans to announce what he calls “reciprocal” tariffs to match the tariffs, taxes and subsidies provided by other countries. That could dramatically increase the tariff rates charged globally while maintaining the risk of a broader tariff.