The White House announced Wednesday that President Donald Trump has granted automakers a one-month exemption from his 25% tariffs on Canada and Mexico, provided they comply with existing free trade rules. This temporary relief halted Wall Street’s steepest decline in nearly three months.
The administration is also considering exemptions for other products from the tariffs that took effect Tuesday. However, Trump emphasized he is not ending his trade pressure campaign against both countries, which he says is aimed at reducing fentanyl smuggling.
Following a conversation with Canadian Prime Minister Justin Trudeau, Trump stated on Truth Social: “He said that it’s gotten better, but I said, ‘That’s not good enough.’ The call ended in a ‘somewhat’ friendly manner!” Public data shows just 0.2% of fentanyl seized in the U.S. comes from Canada, with the majority entering through the southern border.
A Canadian government source indicated Canada might reduce its retaliatory tariffs if the U.S. drops some of its measures, though negotiations continue with no agreement reached yet.
The temporary exemption boosted auto stocks, with General Motors rising 7.2% and Ford gaining 5.8%, though both remain down for the year. The tariffs create significant challenges for automakers who produce vehicles across North America, with parts frequently crossing borders during manufacturing.
The one-month exemption for vehicles complying with U.S.-Mexico-Canada Agreement (USMCA) content rules benefits Ford, GM, and Stellantis. Trump may also eliminate the 10% tariff on Canadian energy imports that meet USMCA standards. Agriculture Secretary Brooke Rollins indicated potential exemptions for agricultural products remain “to be determined.”
Trump’s tariffs have strained relations with both trading partners. Canada has imposed retaliatory tariffs, and Mexico has promised to do the same. Mexico’s state oil company Pemex is exploring alternative markets in Europe and Asia, including China, after sending nearly 60% of its exports to the U.S. last year.
Fentanyl is responsible for most U.S. drug overdose deaths, exceeding 100,000 annually in recent years. U.S. officials claim Canada and Mexico serve as conduits for the drug and its precursor chemicals.
The tariffs threaten Canada’s economic recovery and could trigger a recession in a country that relies on the U.S. for 75% of its exports. Canadian Foreign Minister Melanie Joly suggested oil and gas exports could be leveraged in negotiations, adding Canada couldn’t “go through this psychodrama every 30 days.”
Trade tensions may already be impacting the U.S. economy. New data shows slowing payroll and wage growth, while a Federal Reserve report noted widespread business uncertainty about Trump’s policies, with some companies raising prices ahead of tariff implementation.
The dollar hit three-month lows on Wednesday, while U.S. stock indices temporarily stabilized after steady declines. The S&P 500 rose 1.1%, recovering about a third of its losses from the previous two days.
Trump has also imposed additional 10% duties on Chinese goods, which China has reciprocated with its tariffs.
Without a long-term agreement, the tariffs could significantly impact pickup trucks. Analysis suggests the measures would add an average of $3,000 to vehicle prices and up to $7,000 for models from Mexican and Canadian plants—potentially affecting Republican-leaning buyers, according to an Edmunds survey.
Trump’s announcement followed a call with the CEOs of Ford, GM, and Stellantis. Vehicles from these companies comply with USMCA rules requiring 75% North American content for duty-free U.S. market access, plus 40% of passenger car content and 45% of pickup truck content manufactured in the U.S. or Canada.
“Ford, GM, and Stellantis applaud President Trump for recognizing that vehicles and parts that meet the high U.S. and regional USMCA content requirements should be exempt from these tariffs,” said Matt Blunt, president of the American Automotive Policy Council.
Industry sources indicate automakers support increased U.S. investment but want certainty regarding tariff policies and emissions rules before making major changes. The exemption would also benefit foreign brands with large U.S. operations, like Honda and Toyota, while non-compliant competitors would face the full 25% tariff.
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