Washington: U.S. President Donald Trump has temporarily exempted automakers in Canada and Mexico from his newly imposed 25% tariffs, provided they adhere to existing free trade regulations. The White House announced the one-month reprieve on Wednesday, offering a temporary boost to Wall Street, which had been experiencing its steepest decline in nearly three months.
The White House also indicated that Trump is open to considering additional exemptions for specific products affected by the tariffs, which took effect on Tuesday. However, the president underscored that his broader trade war with Canada and Mexico remains in effect, linking the tariffs to his efforts to curb fentanyl smuggling.
After a phone conversation with Canadian Prime Minister Justin Trudeau, Trump signaled dissatisfaction with Canada’s measures. “He said that it’s gotten better, but I said, ‘That’s not good enough,'” Trump wrote on his Truth Social platform, adding that the call ended on a “somewhat” friendly manner.
President Donald Trump will exempt automakers from his punishing 25% 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 said https://t.co/4qkdEvXno9 pic.twitter.com/iUmPJgon8w
— Reuters (@Reuters) March 6, 2025
Trade Uncertainty and Market Reactions
Public data shows that only 0.2% of fentanyl seized in the U.S. comes from Canada, with the vast majority originating from the southern border. Nevertheless, Trump has maintained his stance that both Canada and Mexico must do more to address the crisis.
A Canadian government source stated that Ottawa is willing to ease its retaliatory tariffs if the Trump administration scales back some of its own restrictions. However, negotiations between Washington and Ottawa remain ongoing, and no final agreement has been reached.
The temporary exemption provided relief to auto stocks, with General Motors (GM) shares rising 7.2% and Ford gaining 5.8% on Wednesday. However, both companies’ shares remain down for the year amid broader trade uncertainty.
Impact on North American Automakers
Trump’s tariffs have posed challenges for the auto industry, which relies on complex supply chains that involve manufacturing across North American borders. The exemption applies to vehicles and parts that comply with the U.S.-Mexico-Canada Agreement (USMCA), providing a major advantage to major automakers such as Ford, GM, and Stellantis.
Additionally, Trump is considering removing a 10% tariff on Canadian energy imports, including crude oil and gasoline, provided they meet USMCA content requirements, according to a source familiar with the negotiations.
Agriculture Secretary Brooke Rollins indicated that discussions are still ongoing regarding potential exemptions for agricultural products such as potash and fertilizer. “Everything is on the table,” Rollins told Bloomberg.
Rising Trade Tensions and Economic Fallout
The tariffs have already strained diplomatic relations, with Canada imposing counter-tariffs on select U.S. imports, while Mexico has signaled its intent to retaliate.
Mexico’s state-owned oil giant, Pemex, is actively seeking new buyers in Europe and Asia, including China, to offset potential losses in the U.S. market. In 2023, nearly 60% of Pemex’s crude oil exports were directed to the U.S., making any disruption a significant economic challenge.
The trade war also risks derailing Canada’s fragile economic recovery, with experts warning it could trigger a recession. Canada depends on the U.S. for 75% of its exports and one-third of its imports, making trade uncertainty a serious concern.
Canadian Foreign Minister Mélanie Joly criticized the White House’s approach, warning that the unpredictability of Trump’s policies is harming business confidence. “There’s too much unpredictability and chaos coming out of the White House right now,” Joly told reporters in Toronto. “We can’t go through this psychodrama every 30 days.”
U.S. Economic and Market Reactions
Signs of economic strain in the U.S. have also emerged. New data released Wednesday indicated slowing payroll growth and declining wage gains for job switchers. Meanwhile, the Federal Reserve’s “Beige Book” report cited widespread uncertainty among businesses regarding Trump’s trade policies, with some companies preemptively raising prices in anticipation of further tariffs.
The dollar fell to three-month lows, while U.S. stock indices, which had been declining throughout the week, rebounded slightly. The S&P 500 index rose 1.1%, regaining about a third of its losses from the previous two days.
Implications for Automakers and U.S. Consumers
The tariffs could have a significant impact on the auto industry, particularly Detroit’s key revenue source—pickup trucks—if no long-term agreement is reached.
One analysis estimated that the levies could add an average of $3,000 to the cost of vehicles, with price hikes reaching $7,000 for models produced in Canada and Mexico. Such increases would disproportionately affect buyers who, according to an Edmunds survey, tend to lean Republican.
Also Read | El Salvador Expands Bitcoin Holdings While Reassuring IMF
Trump’s tariff announcement came a day after a call with the CEOs of Ford, GM, and Stellantis. The three automakers meet USMCA’s 75% North American content rule, allowing them to continue duty-free exports to the U.S. market. Additionally, the agreement requires that at least 40% of a passenger vehicle’s core components, including engines, transmissions, and body panels, be manufactured in the U.S. or Canada. For pickup trucks, the threshold is 45%.
“Ford, GM, and Stellantis applaud President Trump for recognizing that vehicles and parts that meet the high U.S. and regional USMCA content requirements should be exempt from these tariffs,” said Matt Blunt, President of the American Automotive Policy Council.
Also Read | Macron Warns of Russian Threat to Europe, Urges Military Preparedness
While automakers support increased U.S. manufacturing investment, industry insiders stress the need for stability regarding tariff policies and emissions regulations before committing to significant changes.
The exemption also benefits some foreign automakers with large U.S. operations, including Honda and Toyota. However, competitors that fail to meet USMCA requirements will be forced to pay the full 25% tariff.
