Exemptions will apply to carmakers in line with USMCA, following talks with GM, Ford, Stellantis

Story last updated 10 March

US president Donald Trump has given carmakers a one-month-long exemption from his recently imposed tariffs on imports from Mexico and Canada, having spoken to the ‘Big Three’ American OEMs - Stellantis, Ford and GM.

The exemption will apply to vehicles that comply with the terms of the USMCA.

The tariffs of 25% on imports from Canada and Mexico were imposed by Trump on 4 March using the International Emergency Economic Powers Act (IEEPA). He also imposed a further 10% tariff on China (on top of an earlier 10% increase on tariffs on China), something he has not yet provided an exemption for.

Canada and China have retaliated against the tariffs. Canada has vowed to impose 25% tariffs against $107 billion worth of US goods, while China has announced 10-15% tariffs on US imports. Mexico’s president Claudia Sheinbaum has reiterated her promise to retaliate with tariffs, details of which are expected to be announced on 9 March.

Automotive industry reaction to the tariffs

The American Automotive Policy Council, a trade group representing the ‘Big Three’, welcomed the decision to exempt USMCA compliant vehicles and parts from the tariffs. Its president, Matt Blunt, said in a statement: “We look forward to working with president Trump and his administration on our shared goals of increasing US automotive production and expanding exports to markets all around the world.”

On 4 March, before the exemption was announced, a statement released by UAW - the automotive union representing workers from Stellantis, Ford and GM - said it was in active negotiations with the Trump administration about “their plans to end the free trade disaster”.

The union welcomed the tariffs, adding: ”We look forward to working with the White House to shape the auto tariffs in April to benefit the working class. We want to see serious action that will incentivise companies to change their behaviour, reinvest in America, and stop cheating the American worker, the American consumer, and the American taxpayer.”

The impact of Trump’s tariffs on the automotive supply chain

Despite gaining a month’s leeway, the tariffs are likely to throw the automotive supply chain into chaos if they are enforced from April. While OEMs and logistics providers will have a few extra weeks to reorganise optimised supply chain routes, the problem will be compounded in April, when Trump’s global reciprocal tariffs are due to come into play.

While many OEMs producing vehicles in Mexico and Canada will aim to meet USMCA rules, some OEMs and vehicle models won’t - leaving uncertainty in the automotive supply chain once again.

The sector will face massive cost increases as both finished vehicles and parts will be taxed, with the 25% tariffs Trump threatened on steel and aluminium parts. On top of this, components cross the US-Mexico border multiple times before they get installed in a vehicle.

It is unclear whether production will halt while OEMs reassess logistics flows, either before the tariffs hit or during their imposition. A rapid response special report by S&P Global Mobility found that there is a 70% probability of a quick resolution now that the tariffs have been deployed, in which case tariffs would only be in effect for up to two weeks. The report said that some automaker production would be expected to be lost due to supply issues and border gridlock, as well as expected short-term OEM production halts. The company estimated that one-third of production could be disrupted in the region within one week, equating to disruption of more than 20,000 units per day. In this scenario, S&P said it would expect all lost sales production is regained in short order.

The probability of extended disruption was calculated by S&P to be 20%, if tariffs are held in place for six to eight weeks. In this case, it is expected that several high exposure vehicles slow or cease production, leaving OEMs forced to conserve inventory and be careful to replenish with ‘tariffed’ stock.

OEMs could have product development delays during this period, having a knock-on effect into future years. However, in the case of a six-to-eight-week disruption, it is expect most sales and production are compensated for within 12 months.

The worst case scenario would be a ‘Tariff Winter’, which S&P puts at a 10% probability. If the tariffs are integrated long-term into the automotive supply chain, it would “create an environment of sub-optimal sourcing”, the report said. This could cause North American ligh-vehicle sales to decline by 10% for several years with a long-term decline in competitiveness of around 10% in the US, 8% in Mexico and 15% in Canada.

Michael Tamvakis, professor of Commodity Economics and Finance at Bayes Business School, City St George’s University of London, said that the car makers which will be hurt most by the tariffs are US companies that use Canada and Mexico for part of their supply chain.

“If US car manufacturers are hit by lower sales because of new tariffs, are they likely to have the spare cash to invest in US facilities? In a parallel development, Apple has announced their plan to reshore the production of some of their proprietary chips and hardware, but they have substantial amounts of cash to undertake this investment, which car manufacturers may not be able to generate,” Tamvakis said. “If Mexico imposes retaliatory tariffs, Mexican inflation is likely to run away, exacerbating the vicious cycle of an already poor situation by curtailing growth or plunging the economy into recession. One can envisage a similar situation for Canada.”

Demand for trade expertise

The pause on tariffs for USMCA-compliant goods has triggered an increase in requests for USMCA qualification, a wake-up call for those who believed that qualification was automatic for those moving goods across the border.

“In the past, many avoided seeking qualification because it seemed like an extra step, especially on goods that were already duty-free,” said Mike Short, president of global forwarding at CH Robinson. “But with the new 25% IEEPA tariffs and latest announcement from the White House pausing tariffs on USMCA-compliant goods, shippers have a stronger incentive to go through the qualification process for all their products.”

However, that is more easily said that done and the process requires significant time and resources, with trade expertise essential. According to Strong, CH Robinson received an increase of USMCA qualification and tariff classification requests before Trump’s announcement on USMCA-compliant was even official

“Now that the official amendments are published, these requests have only increased, and we expect this trend to continue,” said Short, adding that changes in trade policy in North America and the potential for reciprocal tariffs was focusing CH Robinson on supporting its 83,000 customers in protecting their supply chains.”

Short said that that while many supply chains have limited ability to pivot sourcing locations in the short to medium term due to the cost, it is worth them exploring alternative suppliers for future investment and diversification to better protect the supply chain in the long-term.

We will update this story as more information becomes available…