The administration of U.S. President Donald Trump now says that Canadian automotive parts that are compliant with existing trade deals will be exempt from U.S. import tariffs.
New guidance from U.S. Customs and Border Protection says that auto parts compliant with the Canada-U.S.-Mexico Agreement on trade will not have additional import duties levied on them.
The news is a positive development for Canada’s automotive and manufacturing industries that are concentrated in southern Ontario near the border with Detroit, Michigan.
President Trump had slapped a 25% tariff on all vehicle imports to the U.S. last month but has now made a carveout for car parts that are compliant with the North American trade pact.
U.S. automakers such as General Motors (GM) and Ford (F) had lobbied hard and argued that it would be extremely difficult on their businesses should tariffs apply to auto parts from Canada and Mexico.
Auto parts typically cross the border between Canada and the U.S. multiple times before a vehicle is completed.
General Motors Chief Executive Officer (CEO) Mary Barra warned recently that the import tariffs could cost the company up to $5 billion U.S. in lost revenue this year.
President Trump also signed an executive order giving American automakers relief from 25% duties imposed on steel and aluminum products.
And Trump also signed an executive order offering automakers that finish their vehicles in the U.S. a rebate on imported auto parts that is equal to 15% of a vehicle’s retail price.
While President Trump has claimed his tariffs will bring auto manufacturing back to the U.S., the sector has been integrated with Canada since the signing of the 1965 Auto Pact trade deal.
The Canada-U.S.-Mexico Agreement on trade was negotiated during the first Trump presidency and includes boosted supports for the North American auto industry.
The stock of General Motors has declined 12% this year to currently trade at $45.05 U.S. per share.