Trump Offers Temporary Tariff Relief for Canadian Auto Parts Under USMCA
Canadian auto parts manufacturers just caught a break—but it comes with strings attached. In a policy shift announced this week, the U.S. government confirmed that auto parts compliant with the USMCA (also known as CUSMA in Canada) will be exempt from the 25% tariff originally set to hit on May 3.
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Two-Year Reprieve for Compliant Auto Parts
The change came after intense lobbying from U.S. automakers who warned that Trump’s initial plan would disrupt production across North America. Under the revised plan, Canadian and Mexican parts that meet USMCA content requirements can now enter the U.S. duty-free for the next two years.
The White House confirmed the exemption in newly released documents, outlining that eligible vehicles must be assembled in the U.S. and reach 85% USMCA content in Year 1 to receive a 3.75% rebate. That rebate drops to 2.5% in Year 2 with a 90% content threshold. By Year 3, there is no rebate guarantee, creating uncertainty for long-term investment planning.
Industry Reacts: Relief and Reservations
Flavio Volpe, head of Canada’s Automotive Parts Manufacturers’ Association, called the exemption “a critical stopgap,” but warned it’s not a full solution. “We need the tariff threat removed across the board,” he said. Unifor, the union representing thousands of Canadian auto workers, echoed those concerns, calling the policy “a convoluted offset scheme”.
Canadian plants, mostly in Ontario, rely heavily on U.S. exports. While some relief is welcome, vehicles made in Canada are still subject to full tariffs due to lower non-U.S. content, placing pressure on cross-border supply chains.
Still Billions in Costs Ahead
Despite the exemption, General Motors estimates up to US$5 billion in added costs this year, with a possible US$3 billion hit to profits. Meanwhile, automakers warn of vehicle price hikes ranging from US$2,000 to US$12,000 per unit, even with partial relief.
Mexico’s President Claudia Sheinbaum called the development “good news” and reaffirmed commitment to keeping USMCA supply lines intact. But Canadian business leaders, including the Chamber of Commerce, say the uncertainty of Trump’s tariff strategy is killing confidence.
The bottom line? The exemption helps, but only a full rollback will truly stabilize the North American auto sector.
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What do you think: Should Canada push for a permanent exemption or prepare for more trade shocks?
More…
- https://www.theglobeandmail.com/business/article-us-gives-canadian-auto-parts-makers-a-tariff-break
- https://globalnews.ca/news/11159811/donald-trump-tariffs-auto-canada-cusma-may
- https://financialpost.com/pmn/business-pmn/trumps-auto-tariff-relief-shields-usmca-auto-parts-from-25-tax
- https://www.overheretoronto.com/canadian-dollar-sees-mixed-fortunes
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