New Chevrolet and Volvo vehicles at the Dundalk Marine Terminal at the Port of Baltimore. Photographer: Nathan Howard/Bloomberg.
President Donald Trump exempted Mexican and Canadian goods covered by the North American trade agreement known as the USMCA (United States–Mexico–Canada Agreement) from his 25 percent tariffs, offering major reprieves to the U.S.’s two largest trading partners. He signed orders yesterday paring back the tariffs, which are related to illegal immigration and fentanyl trafficking, until April 2. That is the date when the president is expected to start unveiling plans for so-called reciprocal duties on nations around the world as well as sector-specific duties.
“They’ve been working much harder lately, do you notice that? On people coming in and drugs. We’ve made tremendous progress on both,” Trump said in the Oval Office, referring to Mexico and Canada.
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Automobiles and parts that meet USMCA requirements are among the products exempted from the tariffs. Canadian potash used heavily in fertilizers for U.S. agricultural producers faces a lower 10 percent duty. Some 62 percent of Canadian imports would be subject to the tariffs under historic trade data, with much of that energy products subject to a 10 percent rate, said a White House official. However, the official cautioned those proportions could change as importers rush to comply with the new rules.
Trump warned that relief for automakers would be short-lived, saying he would not sign another extension next month. “I told them, ‘That’s it; this is a short-term deal,’” the president said, adding he told auto executives not to come back and ask for relief again.
The decision nonetheless marks a significant reversal by Trump, who on Tuesday announced the largest tariff increase in a century, only to back down 48 hours later as stocks were hammered and Republicans expressed concern about the economic consequences. The president downplayed the reaction, saying, “I’m not even looking at the market.” Trump argued that foreign countries are “ripping us off” and that the tariffs would put the U.S. on a stronger footing.
“There’ll always be a little short-term interruption. I don’t think it’s going to be big,” Trump said.
On Wednesday, he exempted automobiles from the tariffs in order to minimize disruption to the industry and auto workers, according to the White House official. The United States, Mexico and Canada have a deeply integrated auto supply chain, and Detroit’s Big Three car companies had lobbied the administration for weeks for a carve-out.
Trump decided to pare back the tariffs after speaking to Mexican President Claudia Sheinbaum, Canadian Prime Minister Justin Trudeau, and auto company executives.
Canada delayed its plan for a second round of retaliatory tariffs against the U.S. following Trump’s announcement, though it is keeping in place duties it imposed Tuesday on around $20.9 billion in U.S. goods.
Commerce Secretary Howard Lutnick telegraphed the decision earlier Thursday, saying Trump was weighing an exemption for both Mexican and Canadian goods under the agreement. Lutnick said on CNBC that both Mexico and Canada “offered us an enormous amount of work on fentanyl.” The president has tied the tariffs, as well as a 20 percent duty on China, to commitments by the other three countries to crack down on the flow of illicit drugs and migration into the U.S.
‘Showing Results’
At a press conference yesterday, Sheinbaum said she outlined Mexico’s security efforts, including measures to stop fentanyl trafficking, during her call with Trump. “I told him, ‘We’re showing results,’” she told reporters. “I told him that I understood his concern about the U.S. deficit, but that it was better to continue working together and having a dialogue.”
The Mexican president also said she warned Trump that if the tariffs remained in place she would have been forced to respond. The delay until April made such retaliatory actions unnecessary, she added. “We were treated with a great deal of respect,” Sheinbaum said.
Using 2024 trade data, about 49 percent of U.S. imports from Mexico are exempt from duties under the USMCA, according to U.S. Census data analyzed by Bloomberg Economics. An additional 41 percent of imports fall under a gray area, given that those goods previously qualified under a different exemption, such as the so-called “most-favored nation” rate.
If those goods are no longer allowed to trade under those preferential rates, providers may look to switch to complying with USMCA to avoid the new 25 percent tariffs. At the very least, 10 percent of the goods exported from Mexico into the U.S. will be subject to the U.S.’s new tariffs. For instance, a White House official said that oil covered under the USMCA is exempt, and if it isn’t USMCA-compliant, it is still subject to the 10 percent tariff.
The American president previously offered a one-month exemption to automobiles covered by the USMCA, and administration officials were considering exempting certain agricultural imports, before going ahead with broader relief.
The development is the latest in a frenzied week that saw Trump apply across-the-board 25 percent tariffs on Canada and Mexico, with the exception of Canadian energy, which faced a 10 percent rate. He also doubled his recent tariff on China, from 10 percent to 20 percent. That sparked a round of retaliatory tariffs from Canada on U.S. goods.
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