U.S. President Donald Trump will grant some automakers a one-month exemption from his 25% tariffs on Canada and Mexico, provided they adhere to an existing free trade agreement, the White House announced on Wednesday.
Trump is also open to hearing about other products that should be exempted from the tariffs, which took effect Tuesday, the White House said.
Auto stocks rose on the news, with General Motors up 5.3% and Ford up 4.1%.
Tariffs Challenge Automakers
Trump’s tariffs pose extreme difficulties for automakers, 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.
A one-month exemption for cars and trucks that comply with the U.S.-Mexico-Canada Agreement’s complex content rules, as Trump has outlined, would be a boon for Ford, GM and Stellantis.
Trump also might eliminate the 10% tariff on Canadian energy imports, such as crude oil and gasoline, which comply with the USMCA rules of origin, a source familiar with the discussions said.
The announcement came after a phone call in which Trump says he told Canadian Prime Minister Justin Trudeau that his country is not doing enough to stop fentanyl smuggling. “The call ended in a ‘somewhat’ friendly manner!” he wrote on his Truth Social platform.
Talks will continue between the two countries, Trudeau’s office said.
The tariffs threaten to derail Canada’s fledgling economic recovery and could trigger a recession, as the country relies on the United States for 75% of its exports and a third of all imports.
Trade Tensions
Trade tensions also already may be hurting the United States.
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 U.S. stock indices have fallen steadily this week. The Nasdaq has fallen 9% since February 20.
Trump has also imposed an extra 10% duty on Chinese goods.
Boon For Detroit
Vehicles made by Ford, GM and Stellantis comply with the USMCA’s complex rules that require 75% North American content in order to get duty-free access to the U.S. market.
The rules also require 40% of a passenger car’s content to be manufactured in the United States or Canada, based on a list of “core parts” including engines, transmissions, body panels and chassis components. The threshold for pickup trucks is 45%.
Automakers have expressed support for boosting U.S. investment but want certainty over tariff policies as well as on vehicle emissions rules before making dramatic changes, two industry sources said.
“We are prepared to work with the Trump administration to support further investment in our U.S. manufacturing footprint, but we need time to make these changes without negatively impacting the business and our customers,” Stellantis told its dealers Tuesday in an email seen by Reuters.
An exemption also would benefit some foreign brand automakers with large U.S. production footprints, including Honda and Toyota, but some competitors that don’t comply would have to pay the full 25% U.S. tariffs.
(With inputs from Reuters)
