US considers exemptions from Canada and Mexico tariffs amid market jitters

Donald Trump

The United States is mulling providing exemptions to some industries from the just-imposed 25% tariffs on Canada and Mexico, US Commerce Secretary Howard Lutnick said. His statement on Wednesday sent car stocks rallying after a big fall the day before, as the Financial Times reported.

Lutnick said US President Donald Trump was considering which sectors would get relief from the tariffs that went into effect on Tuesday. "What he's contemplating is which areas of the market that can possibly—possibly he'll think about providing them relief," Lutnick said during an interview with Bloomberg TV. "My own thought is it's going to be somewhere in the middle, so not 100% of everything and not zero."

The remarks gave some hope to investors and businesses hit by the new trade barriers. Automakers, especially, got a lift, with General Motors, Ford, and Stellantis shares increasing 3% to 5% on Wednesday.

Auto industry braces for impact

Lutnick said that adherence to the 2020 US-Mexico-Canada Agreement (USMCA) would be a deciding factor for possible tariff exclusions. "If you followed the agreement, then perhaps you don't pay tariffs," he stated. "And if you didn't follow the agreement, well, you did that at your own risk."

The tariffs have had a big effect on the auto industry, which depends on frictionless cross-border trade among the three North American countries. The manufacturing process for most vehicles involves several transfers of parts among the US, Canada, and Mexico before final assembly.

Bernstein analysts have identified General Motors as the US automaker most exposed to the new tariffs, estimating a potential $6.7 billion drop in cash flow next year. Ford could see a $2.9 billion decline, while Stellantis, listed in Milan, might lose €3.5 billion. European automakers, such as Volkswagen, also saw their stocks rebound on Wednesday following initial losses due to the tariff announcement.

Political tensions escalate

The tariff war has put pressure on the relations among the US, Canada, and Mexico. Canadian Prime Minister Justin Trudeau pledged not to remove Canada's retaliatory tariffs unless the US removes all tariffs on Ottawa. In his reaction on Tuesday, he described Trump's action as "a very dumb thing to do" and quickly imposed a 25% tariff on C$30 billion (US$21 billion) of US imports.

Simultaneously, Mexican President Claudia Sheinbaum postponed her nation's response by assuring that she looks forward to debating the issue with Trump on Thursday.

Relations continued to heighten tension as US Treasury Secretary Scott Bessent told Fox News that Trudeau was "a lame duck" and "a dead man walking" after resigning early this year.

Trade negotiations to come

While the near-term attention is on short-term tariff relief, Lutnick said a more comprehensive renegotiation of the USMCA might occur next year. The White House has also hinted that nations like Brazil, India, Japan, and the European Union might be subject to further duties as part of Trump's campaign to impose "reciprocal" trade policies.

Also read: ‘Now it is our turn’: Trump announces reciprocal tariffs from April 2, calls out India, China for 'unfair systems'

The government has linked the potential tariff exceptions to wider geopolitical priorities, most importantly attempts to contain fentanyl smuggling. Lutnick suggested any reprieve afforded to Canada and Mexico would only be temporary, lasting perhaps just a month, depending on them working together to stop the illegal flow of the lethal opioid into the US.

"If they halt the fentanyl flow, then the president's open-minded to it," he said. "There are gonna be tariffs, let's not kid ourselves. Maybe, perhaps he'll waive them until April 2 at least."

Later this week, the White House will announce about possible exemptions.