The automotive industry is breathing a sigh of partial relief today as details about a potential trade agreement with Canada trickle out that would exempt U.S. neighbors to the north and south from steep import tariffs.
A new U.S.-Mexico-Canada trade agreement exempts the neighboring countries should President Donald Trump impose a 25% tariffs on auto imports to the United States. The deal would prevent sharp increases in car prices for vehicles made in North America, but leaves the door open to retaliatory auto tariffs on China.
The deal will go to Congress for tweaks and approval before making its way to Trump’s desk for signage.
Mexico and Canada would each get a tariff-free passenger vehicle quota of 2.6 million passenger vehicles exported to the United States annually, according to a side-letter to the agreement showed to Reuters on Monday. Pickup trucks built both in the U.S. and one of its neighboring countries will be exempt entirely.
Mexico will receive a quota of $108 billion annually for imported auto parts if tariffs go into place, while Canada will receive a quota of $32.4 billion annually, according to the note. The quotas are “significantly above existing production volumes,” which allow for continued export growth, according to reports.
In recent weeks and months, Trump has threatened a 25% tariff on all auto imports from China including autos, which would have significant implications for nearly all OEMs that produce cars in China and purchase parts from the country. This latest trade deal allows Trump to keep the threat of tariffs in his back pocket against China while ensuring safety for the U.S. most significant trading partners in the region.
Lenders fear the tariffs would raise prices on new vehicles and price out consumers looking to finance a new vehicle. Tariffs would also have the effect of making ownership more expensive as maintenance and servicing charges would increase because of the upcharge on imported parts.