WASHINGTON/OTTAWA (Reuters) -President Donald Trump will exempt automakers from his punishing 25% tariffs on Canada and Mexico for one month as long as they comply with an existing free trade agreement, the White House said 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.
He also made clear he was not calling off his trade war with Canada and Mexico as he pressures the two countries to deter fentanyl smuggling. After a phone call with Canada’s Prime Minister Justin Trudeau, Trump said he was not convinced the situation had improved.
“He said that it’s gotten better, but I said, ‘That’s not good enough,'” Trump wrote on his Truth Social platform. “The call ended in a ‘somewhat’ friendly manner!” Trudeau’s office said discussions would continue. Official statistics show a small fraction of fentanyl in the United States comes across the Canadian border.
The one-month reprieve sparked a rebound in auto stocks, but trade tensions have created unexpected uncertainty for U.S. corporations and sapped consumer confidence, leading to a selloff in stocks in recent days.
General Motors shares were up 7% and Ford gained 5.6% on Wednesday, but both companies’ shares are still down on the year.
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.
Trump’s tariffs threaten to severely damage relations between the three trading partners. Canada has hit back with tariffs of its own on selected U.S. imports, while Mexico has vowed to retaliate as well.
Fentanyl is responsible for the majority of drug overdose deaths in the United States, which have climbed above 100,000 annually in recent years. Officials say Canada and Mexico are conduits for shipments of the drug and its precursor chemicals into the U.S. in small packages that are not often inspected by customs agents.
Public data shows 0.2% of all fentanyl seized in the U.S. comes from the Canadian border, while the vast majority originates from the southern border. U.S. officials seized roughly 1/3 of an ounce along the Canadian border in January, down from 5.5 Pounds in November.
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 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, while a separate Federal Reserve report found widespread uncertainty among businesses across the country about Trump’s policies. The Fed’s “Beige Book” report showed some businesses were not waiting for tariffs to take effect to raise their prices.
The dollar hit three-month lows on Wednesday, and U.S. stock indices have fallen steadily this week.
Trump has also imposed an extra 10% duty on Chinese goods, and China has responded with additional tariffs of its own.
BOON FOR DETROIT
Trump’s announcement came one day after a phone call with the CEOs of Ford, GM and Stellantis.
Vehicles made by the three companies 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.
(Reporting by Susan Heavey, David Shepardson and David Lawder in Washington and David Ljunggren in Ottawa, Writing by Andy Sullivan; Editing by Louise Heavens, Chizu Nomiyama, Deepa Babington and Diane Craft)
Comments