Donald Trump has decided to exempt carmakers in North America from the US tariffs on Mexico and Canada, following pressure from motor industry leaders. The White House confirmed this concession after the president spoke with the heads of Ford, General Motors, and Stellantis on Wednesday.
Each company has operations and suppliers in Canada and Mexico. A tariff exemption of at least a month will be granted on vehicles manufactured across the continent, but only if a previous agreement on ‘rules of origin’ is fully implemented. This agreement determines where a product is sourced initially and where tariffs may apply during cross-border transit.
“Reciprocal” tariffs are still planned for April, according to the president’s spokesman.
Manufacturers have expressed concerns about the impact of the 25% tariffs imposed on Canada and Mexico on Tuesday, as parts flows between the three countries can be affected by multiple tariffs. Operations can involve components crossing borders more than once in the production process, leading to increased costs for customers.
Automakers’ share prices have been suffering since Mr. Trump took office again in January.
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Why are tariffs such a big deal?
Reuters news agency sources reported that car executives promised additional US investment but sought clarity on tariffs beforehand. President Trump encouraged them to relocate their operations to the United States, as stated in a White House release.
This tariff exemption marks the first compromise on trade issues, following the president’s statement on Tuesday that there would be no reversals and only more tariffs after Canada’s retaliatory response.
This week has seen growing unease from corporate America towards the tariff policy against Mexico and Canada, the US’s three largest trading partners alongside China, which is also facing 20% tariffs. Financial markets have responded poorly to the imposition of tariffs, fearing a negative impact on US profitability.
One forecast for US growth indicated that the threat of tariffs since Trump’s election had reduced activity and pushed the country towards recession.
Reports of boycotts against US goods in Mexico and Canada are increasing, reflecting the public nervousness around tariffs. Executive Lawson Whiting of Brown-Forman, the maker of Jack Daniel’s, recently mentioned Canadian provinces removing American alcohol from stores as being “worse than a tariff.”
US stock market values have declined sharply since the inauguration, and the dollar has weakened against other currencies, including the euro and pound, amid the tariff uncertainty.
Investor concern for the US economy has led to a decrease in oil prices, with Brent crude trading at its lowest level in over three years at $68 a barrel earlier this week.