CNN
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President Donald Trump has granted an exemption on auto tariffs on Mexico and Canada for one month, White House Press Secretary Karoline Leavitt announced Wednesday, issuing a major, albeit temporary, concession on a key part of his administration’s economic plan.
After speaking with Ford, General Motors and Stellantis, Trump said he agreed to a reprieve to ensure America’s Big Three automakers aren’t harmed financially. But the tariffs are not off – not yet, anyway.
“At the request of the companies associated with USMCA, the president is giving them an exemption for one month so they’re not at an economic disadvantage,” Leavitt said at the daily press briefing. (USMCA refers to the free-trade agreement that was signed during the first Trump administration among the US, Mexico and Canada.)
All the other across-the-board 25% tariffs on Mexico and Canada remain in effect. But Leavitt also said Trump would remain open to other tariff exemptions – days after saying there would be none. Stocks rallied on the news Wednesday.
Leavitt said the automakers should use the monthlong reprieve to work toward the president’s goals of bringing America’s auto production back to the United States – an unlikely scenario, because that would mark a significant undertaking, requiring massive hiring, investment and strategic planning.
“He told them they should get on it, start investing, start moving, shift production here to the United States of America, where they will pay no tariff. That’s the ultimate goal,” she added.
In response, Ford said it would continue speaking with the administration about issues facing the industry.
“We appreciate President Trump’s work to support our industry and exempt auto companies complying with USMCA,” Ford said in a statement to CNN. “We will continue to have a healthy and candid dialogue with the Administration to help achieve a bright future for our industry and U.S. manufacturing.”
“We thank President Trump for his approach, which enables American automakers like GM to compete and invest domestically,” a General Motors spokesperson said. “With more vehicle assembly plants in the U.S. than any other automaker, GM has invested over $60 billion since the USMCA took effect, and we continue to invest billions of dollars every year in our manufacturing base, supply chain, and U.S. jobs.”
But Canada is not cheering the one-month auto tariff reprieve, even though US Commerce Department data shows cars are Canada’s second-biggest export to the US.
Ontario Premier Doug Ford said he and Canadian Prime Minister Justin Trudeau are unwilling to accept any tariffs on their country’s goods. “We’re on the same page, zero tariffs and we are not going to budge,” he told reporters in a briefing Wednesday.
Trump’s decision to grant the extension comes ahead of his plan for reciprocal tariffs across the globe, which are set to be announced on April 2. Unlike the tariffs on Mexican and Canadian goods, Trump won’t consider for any exemptions on the pending reciprocal tariffs, Leavitt told reporters.
They also could come on top of the 25% tariffs still in place on other Canadian and Mexican goods. For instance, last week on a Fox News interview, US Commerce Secretary Howard Lutnick called out Canada’s 5% national sales tax when discussing potential reciprocal tariffs Trump could be eyeing.
Mexico and Canada are essential to the auto supply chain
Long gone are the days of 100% made-in-America cars. For the past several decades, the North American car industry has operated virtually without borders, thanks to free trade agreements that have been signed by various presidents, including Trump.
As a result, parts and whole vehicles have flowed freely across borders, sometimes multiple times, before they end up in an American dealership.
US automakers have argued that having tariffs on autos and auto parts coming from Canada and Mexico puts cars built at North American plants at a tremendous disadvantage. That’s because even cars assembled at US plants all have parts coming from Mexico and Canada and thus would see thousands of dollars each in higher costs. But cars imported from plants in Europe and Asia that have relatively few Mexican or Canadian parts wouldn’t have those higher costs.
“It gives free rein to South Korean and Japanese and European companies,” Ford CEO Jim Farley told investors at a conference last month. “They’re bringing 1.5 million to 2 million vehicles into the US that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.”
Canadian auto plants produced 1.3 million vehicles last year, according to data from S&P Global Mobility, while Mexican plants produced 4 million vehicles. About 70% of those cars were sold in US dealerships to American buyers. Meanwhile, US auto plants produced 10.2 million vehicles.
Last year, the United States imported $217 billion worth of passenger vehicles, according to Commerce Department data. Over a fifth of those cars came from Mexico, the top source of auto imports last year. Behind Mexico were Japan, South Korea, Canada and Germany, which exported a total of $131 billion worth of passenger cars to the US last year.
Valued at $50 billion, passenger cars were Mexico’s top export to the US last year. Behind crude oil, passenger cars were Canada’s top export to the US last year, valued at $28 billion.
Additionally, Canada and Mexico shipped a combined $47 billion worth of car parts to the US last year, federal trade data shows.
Without an auto exemption, the 25% tariff on Mexican and Canadian imports could increase the cost of making cars throughout North America by between $3,500 and $12,000, according to analysis by Anderson Research Group, a Michigan-based think tank.
The administration’s swift about-face on auto tariffs adds to the trade chaos that has unfolded since Trump took office. Leavitt noted the president is “open to hearing about additional exemptions.”
That leaves many businesses in limbo.
A new survey from the Institute for Supply Management released Wednesday showed that respondents noted “great uncertainty about future business activity due to the risk of tariffs and other potential government actions.” Others reported that “tariffs are going to have a ripple down effect that could severely harm our business.”
US stocks rallied Wednesday after the announcement, with the Dow rising to close 486 points higher, or 1.14%. The broader S&P 500 rose 1.12% and the Nasdaq Composite rose 1.46%. Auto stocks also closed higher, with Ford (F) up 5.75%, Stellantis (STLA) up 9.24% and GM (GM) up 7.22%.
