Less than 48 hours after slapping tariffs on all goods from Canada and Mexico, President Donald Trump agreed to a one-month reprieve for automobile imports that qualify for duty-free treatment under the North American trade agreement negotiated during his first term.
The president’s decision followed a phone conversation with executives from the Big Three automakers — General Motors, Ford and Stellantis — who sought relief from the new import taxes. Each of the automakers over the past several decades has developed complex supply chains that cross North American borders multiple times before delivering a finished product.
Along with disrupting those supply lines, Trump’s tariffs would have increased the cost of the typical new car by more than $10,000, industry groups said. Ford CEO Jim Farley warned last month that the president’s tariffs “would blow a hole in the U.S. industry” and give Asian and European producers a distinct competitive advantage.
Trump spared the automakers after acknowledging in Tuesday night’s address to a joint session of Congress that his tariffs would cause “a little disturbance” in the economy.
His tariff pause averts the likely closure of auto plants in all three countries, which would have idled “hundreds of thousands of American autoworkers,” according to Flavio Volpe, president of the Automotive Parts Manufacturers’ Association in Toronto.
“This is not the president acceding to a request from Canada or Mexico for a carve-out. It’s the president making a deal with the automakers he put on the edge of crisis to step back from the brink,” Volpe said.
Karoline Leavitt, the White House press secretary, announced the one-month delay at midday Wednesday. She said that vehicles complying with the 2020 United States-Mexico-Canada Agreement would face no new tariffs, at least until Trump’s plan to implement a new system of tit-for-tat “reciprocal” tariffs takes shape next month.
That 2020 trade deal requires vehicles to meet specific targets for sourcing parts from suppliers in North America or face a 2.5 percent tariff. USMCA requires 40 percent to 45 percent of a vehicle’s content to be produced by workers making an hourly wage of at least $16, a provision designed to discourage sourcing from low-wage Mexican plants.
Leavitt did not indicate whether auto parts would also be covered by the reprieve. Through the first 11 months of last year, the United States imported $72 billion of parts from Mexico and $19 billion from Canada, according to Alix Partners, a consultancy. Over the same period, U.S. imports of light vehicles from the two countries totaled $134 billion.
But several hours later, the White House confirmed that parts also would be exempt.
Shortly before the White House announcement, the president disclosed that he had spoken by phone with Canadian Prime Minister Justin Trudeau about tariffs. Trump reiterated his complaint that lax border policies are allowing illicit fentanyl shipments to enter the United States.
“He said that it’s gotten better, but I said, ‘That’s not good enough,’” the president said in a post on Truth Social. “The call ended in a ‘somewhat’ friendly manner!”
When he first raised the prospect of tariffs on two of the United States’ closest trading partners, Trump cited flows of drugs and unauthorized migrants. Canada and Mexico responded by surging forces to their borders. The president this week has described the tariffs as a means both to combat the scourge of fentanyl and to encourage carmakers to relocate plants to the United States.
Asked if Trump expected automakers to relocate during the next month, Leavitt said yes.
“He told them they should get on it, start investing, start moving, shift production here to the United States of America, where they will face no tariff. That’s the ultimate goal,” Leavitt told reporters.
Automakers could begin planning potential production moves and communicating those changes to their suppliers within that 30-day window. Assuming there is idle capacity at an existing plant in the United States, some work could shift from a Canadian or Mexican plant within several months, said Bill Hurles, a retired auto industry supply chain executive with 38 years of experience.
But any short-term production move could be limited by union contracts, a manufacturer’s commitments to local governments that may have offered tax breaks and suppliers’ capacity. Mexican suppliers, for example, have a dominant market share in production of wire harnesses.
Dramatic increases in U.S. automaking capacity will not happen quickly or inexpensively. “You’re talking billions of dollars to build a new assembly plant and a two- to three-year lead time,” Hurles said.
Most automakers are rethinking their supply chains in light of the shifting U.S. policy environment. Stellantis, for example, decided to reopen its shuttered Belvidere Assembly Plant in Illinois in 2027, the United Workers Union announced this week. The automaker also reversed plans to shift some engine work out of the United States and will instead perform it in existing facilities in Indiana and Michigan.
Still, a gradual increase in tariffs over several years would be a better way of achieving the repositioning of automaking capacity that the president desires, according to Mark Wakefield, Alix Partners’ global automotive market lead. Abruptly increasing taxes on imports will only result in unnecessary expenses, as automakers rush to retool before production cycles for specific models have run their course.
“To try to make the changes earlier means you’re basically spending the money twice. You’re going to retool things. You’re going to revalidate things. It’s very expensive and wasteful to do it off cycle. You’re basically repeating costs that you’ve already paid for,” he said.
Trump’s decision this week to impose 25 percent tariffs on all merchandise from U.S. neighbors threatened to effectively tear up a treaty he once celebrated as “the largest, fairest, most balanced and modern trade agreement ever achieved.”
Now, he is relying on it as the rationale for his auto-industry reprieve. The industry’s stay of execution may be brief. Trump has vowed to move ahead April 2 with a new plan for “reciprocal” tariffs, which is expected to result in sharp increases in U.S. border levies.
The Dow Jones Industrial Average rose on the White House announcement and finished the day up more than 1 percent. Leading automakers were among the industrial firms hit hard by Tuesday’s tariff news, but they regained ground Wednesday. General Motors closed up more than 7 percent while Ford gained almost 6 percent and Stellantis jumped more than 9 percent.
Earlier Wednesday, Commerce Secretary Howard Lutnick previewed the president’s announcement, saying the Trump administration could exempt some products from the tariffs that were imposed a day before, with details expected later in the day.
“The president is listening to offers from Mexico and Canada. He’s thinking about trying to do something in the middle,” Lutnick said in an interview on Bloomberg TV.
But the president’s erratic conduct of trade policy — threatening, imposing, delaying and modifying tariffs seemingly on a whim — has angered some of the closest U.S. allies. Trump’s latest switch, lifting a burden from the continent’s auto sector, but only temporarily, drew little applause.
“Yes, this is good news, but let’s bear in mind, trust was damaged, and that won’t be recovered in a day. Without trust, no one wants to take risks, investment goes down and there is no prosperity,” Mariana Campos, the director of México Evalúa, a prominent Mexican think tank, posted on X.
Trump, in his address to Congress on Tuesday, said he had recently met with automakers but warned that there will be some short-term pain associated with the tariffs. He called on manufacturers to move more of their operations to the United States, while hailing recent announcements from Apple and Taiwan Semiconductor Manufacturing Co.
The administration’s shifting messages about tariff policy led many investors to cash out their positions amid the pervasive uncertainty, said Michael Farr of the D.C.-based investment firm Farr, Miller and Washington. Markets quaked Tuesday after Trump imposed the tariffs on Canada and Mexico, with the Dow sinking 1.5 percent for the day.
“Wall Street has done a pretty good job at ignoring tariff rhetoric as just rhetoric; the reaction this week is a response to the rhetoric becoming reality,” Farr said.
Valentina Muñoz Castillo in Mexico City contributed to this report.
