- Trump will exempt automakers from the 25% tariff on Mexican and Canadian goods for at least a month, the White House said.
- The exemption applies to vehicles that comply with the relatively complicated criteria set out in the U.S.-Mexico-Canada free trade agreement.
- Moving an automotive supply chain takes a lot longer than a month, though, so this isn’t the end of the problem for car companies.
President Donald Trump granted automakers a temporary reprieve from his newly announced tariffs Wednesday. The new 25% tariff on almost all imports from Mexico and Canada will not apply to automakers for at least one month, the White House said.
It’s an important break for the industry, which has become ground zero for the tariff war. Trump’s press secretary said the decision was made after calls with Stellantis, Ford and General Motors, the Detroit “Big Three.” The exemption covers vehicles that fully comply with the existing U.S.-Mexico-Canada free trade agreement, negotiated during Trump’s first term. That agreement requires 75% of a vehicle’s content to be from North America and 40% of it to be from the U.S. or Canada to qualify, among other restrictions. So some made-in-Mexico and made-in-Canada cars may still get hit by the full tariff.
Still, many of the Detroit Three’s vehicles will be spared by this exemption. But not for long. The initial period is only a month, which won’t be enough to relocate a supply chain. Bringing a product back to the U.S. would require at least a year, assuming a best-case scenario where an automaker has an already-constructed, warm plant of the right size ready to be retooled, according to Mark Wakefield, Global Automotive Market Lead for AlixPartners. Realistically, it’s more of a two-year timeline for most, at least.
The reality is that a month is nowhere near enough time for automakers to relocate factories or reconfigure supply chains,” Edmunds Director of Insights Jessica Caldwell said in an emailed statement. In the short term, manufacturers may need to ramp up production and stockpile inventory as a hedge against potential tariffs — an expensive and risky move that could lead to bloated inventories if the tariffs don’t take effect.
Being stuck in this limbo presents challenges for the industry and could have ripple effects on consumer confidence,” she added. Affordability is already a major concern for American car shoppers amid elevated prices and interest rates, and continued uncertainty only adds to the pressure.
This move won’t solve those issues. In the same announcement, the White House was clear that the trade war is moving forward. Trump plans to introduce wide-ranging reciprocal tariffs on any market with import duties for U.S. products, and has signaled he plans to put the screws to the European Union and other major trading partners as well.
That means this isn’t the end of this strategy, a hurricane that looks primed to drive up costs for some automakers and severely cripple others. But for automakers, the reprieve is a welcome break in the storm.
