U.S. President Donald Trump announced on Wednesday that automakers will be exempted from his 25% tariffs on goods from Canada and Mexico for one month, provided they comply with existing free trade rules.
This temporary reprieve, which halts the steepest decline on Wall Street in nearly three months, allows auto manufacturers like Ford, General Motors, and Stellantis to benefit from the exemption as long as their vehicles meet the content requirements set under the U.S.-Mexico-Canada Agreement (USMCA).
Trump also expressed openness to additional product exemptions, with discussions ongoing.
However, the president made it clear that he is not backing down from his trade war with Canada and Mexico, particularly regarding efforts to curb fentanyl smuggling. Following a phone call with Canadian Prime Minister Justin Trudeau, Trump remained unconvinced that Canada had made enough progress in addressing the issue.
The new tariffs, which took effect Tuesday, are part of broader efforts by Trump to address illegal drug trafficking. Despite concerns, Canadian officials have indicated they may reduce their retaliatory tariffs if the U.S. revises its stance.
Talks between the U.S. and Canada are still ongoing, though no deal has been reached.
The one-month exemption on autos provided some relief to U.S. automakers, sparking a rebound in shares. GM rose 7.2%, and Ford gained 5.8%, though both companies remain down for the year.
The reprieve eases concerns for automakers that rely on cross-border production, which is complicated by frequent shipments of parts between the U.S., Canada, and Mexico.
The tariffs could result in higher vehicle prices, with estimates suggesting an additional $3,000 for vehicles and up to $7,000 for nameplates from Mexican and Canadian plants. This would impact consumers, especially in the pickup truck segment, a key money maker for Detroit’s automakers.
Canada’s economy, heavily reliant on exports to the U.S., could be hurt by these tariffs, with fears of a potential recession. Trade tensions could also lead to a slowdown in U.S. business activity, as recent economic reports showed lower payroll growth and reduced wage growth for workers switching jobs.
Meanwhile, automakers are seeking clarity on future tariff policies and vehicle emissions rules before committing to significant investments. The temporary tariff relief also benefits foreign automakers such as Honda and Toyota, which have large production footprints in the U.S. but are not exempt from the tariffs unless they meet the USMCA’s stringent content rules.
