President Donald Trump exempted Mexican and Canadian goods covered by the North American trade agreement known as USMCA from his 25% tariffs, offering major reprieves to the US’s two largest trading partners.
Trump signed orders Thursday 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.
Automobiles and parts that meet USMCA requirements are among the products exempt from the tariffs. Canadian potash used heavily in fertilizers for US agricultural producers faces a lower 10% duty. Some 62% of Canadian imports would be subject to the tariffs under historic trade data, with much of that energy products subject to a 10% 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,” he 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 had 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 US 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.
Exempting automobiles from the tariffs was done in order to minimize disruption to the industry and auto workers, according to the White House official. The US, 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 US following Trump’s announcement, though it is keeping in place duties it imposed Tuesday on around $20.9 billion in US 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% duty on China, to commitments by the other three countries to crack down on the flow of illicit drugs and migration into the US.
‘Showing Results’
Sheinbaum at a press conference on Thursday 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 US 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% of US imports from Mexico are exempt from duties under the USMCA, according to US Census data analyzed by Bloomberg Economics. An additional 41% of imports fall into under a gray area, given that 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 25% fees. At the very least, 10% of the goods exported from Mexico into the US will be subject to the US’s new tariffs.
For instance, a White House official said that if oil was covered under USMCA, it’s exempt, and if it wasn’t USMCA-compliant, it is still subject to the 10% tariff.
The American president previously offered a one-month exemption to automobiles covered by 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% tariffs on Canada and Mexico, with the exception of Canadian energy, which faced a 10% rate. He also doubled his recent tariff on China to 20% from 10%.
That sparked a round of retaliatory tariffs from Canada on US goods.
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