President Donald Trump has granted an exemption on auto tariffs on Mexico and Canada for one month, White House Press Secretary Karoline Leavitt confirmed Wednesday.
“We spoke with the Big Three auto dealers. We are going to give a one-month exemption on any autos coming through USMCA,” Trump said in a statement Leavitt read in a White House briefing. Those dealers included Stellantis, Ford and General Motors, which requested the call, she said.
“Reciprocal tariffs will still go into effect on April 2. But at the request of the companies associated with USMCA, the president is giving them an exemption for one month so they’re not at an economic disadvantage.”
Leavitt said the companies should use that month to work toward the president’s goals.
“He told them they should get on it, start investing, start moving, shift production here to the United States of America, where they will pay no tariff. That’s the ultimate goal,” she added.
But Canada is not cheering the one-month auto tariff reprieve, even though US Commerce Department data shows cars are Canada’s second-biggest export to the US.
Ontario Premier Doug Ford said he and Canadian Prime Minister Justin Trudeau are unwilling to accept any tariffs on their country’s goods. “We’re on the same page, zero tariffs and we are not going to budge,” he told reporters in a briefing Wednesday.
Trump’s decision to grant the extension comes ahead of his plan for reciprocal tariffs across the globe, which are set to be announced on April 2. Unlike the tariffs on Mexican and Canadian goods, Trump won’t consider for any exemptions on the pending reciprocal tariffs, Leavitt told reporters.
They also could come on top of the 25% tariffs still in place on other Canadian and Mexican goods. For instance, last week on a Fox News interview, US Commerce Secretary Howard Lutnick called out Canada’s 5% national sales tax when discussing potential reciprocal tariffs Trump could be eyeing.
Mexico and Canada are essential to the auto supply chain
Long gone are the days of 100% made-in-America cars. For the past several decades, the North American car industry has operated virtually without borders, thanks to free trade agreements that have been signed by various presidents, including Trump.
As a result, parts and whole vehicles have flowed freely across borders, sometimes multiple times, before they end up in an American dealership.
US automakers have argued that having tariffs on autos and auto parts coming from Canada and Mexico puts cars built at North American plants at a tremendous disadvantage. That’s because even cars assembled at US plants all have parts coming from Mexico and Canada and thus would see thousands of dollars each in higher costs. But cars imported from plants in Europe and Asia that have relatively few Mexican or Canadian parts wouldn’t have those higher costs.
“It gives free rein to South Korean and Japanese and European companies,” Ford CEO Jim Farley told investors at a conference last month. “They’re bringing 1.5 million to 2 million vehicles into the US that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.”
Canadian auto plants produced 1.3 million vehicles last year, according to data from S&P Global Mobility, while Mexican plants produced 4 million vehicles. About 70% of those cars were sold in US dealerships to American buyers. Meanwhile, US auto plants produced 10.2 million vehicles.
Last year, the United States imported $217 billion worth of passenger vehicles, according to Commerce Department data. Over a fifth of those cars came from Mexico, the top source of auto imports last year. Behind Mexico were Japan, South Korea, Canada and Germany, which exported a total of $131 billion worth of passenger cars to the US last year.
Valued at $50 billion, passenger cars were Mexico’s top export to the US last year. Behind crude oil, passenger cars were Canada’s top export to the US last year, valued at $28 billion.
Additionally, Canada and Mexico shipped a combined $47 billion worth of car parts to the US last year, federal trade data shows.
Without an auto exemption, the 25% tariff on Mexican and Canadian imports could increase the cost of making cars throughout North America by between $3,500 and $12,000, according to analysis by Anderson Research Group, a Michigan-based think tank.
Businesses still in the limbo
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The administration’s swift about-face on auto tariffs adds to the trade chaos that has unfolded since Trump took office. Leavitt noted the president is “open to hearing about additional exemptions.”
That leaves many businesses in limbo.
A new survey from the Institute for Supply Management released Wednesday showed that respondents noted “great uncertainty about future business activity due to the risk of tariffs and other potential government actions.” Others reported that “tariffs are going to have a ripple down effect that could severely harm our business.”
US stocks rose Wednesday after the announcement, with the Dow surging by 540 points. The broader S&P 500 rose 1.2% and the Nasdaq Composite rose 1.49%. Auto stocks also rose on Wednesday’s news, with Ford (F) up 5.7%, Stellantis (STLA) up 9.3% and GM (GM) up 7.7%.
CNN’s Chris Isidore and John Towfighi contributed reporting.
This story has been updated with additional developments and context.