Canadian-made auto parts that were expected to be hit with heavy tariffs this week will now get a two-year reprieve under revised U.S. tariff plans announced earlier this week by President Donald Trump. Canada auto parts tariff relief.
According to documents published on U.S. government websites, Mr. Trump backed away from a plan to impose a 25% tariff on auto parts imported from Canada and Mexico. This decision came after strong lobbying by the powerful U.S. automotive industry and aligns with the terms of the U.S.-Mexico-Canada Agreement (USMCA), which supports free trade between the three countries.
Flavio Volpe, head of the Automotive Parts Manufacturers’ Association, said in a phone interview, “Without this change, a group of U.S. factories would have shut down this weekend.” Volpe, whose association represents 230 parts manufacturers in Canada, has been a leading voice against the auto tariffs. He emphasized that officials on both sides of the border warned the tariffs would drive up costs and severely disrupt U.S. auto production.
However, some Canadian-made components like transmissions and camshafts, which are installed in Canadian assembly plants, still fall under the tariff rule when those vehicles cross into the U.S. That’s because since April, a 25% tariff has been applied to Canadian-made vehicles based on their non-American content.
“It’s really important that we remove the threat of tariffs from the entire sector,” Volpe added.
The two-year delay is in response to concerns from the U.S. auto industry, which argued that rebuilding domestic supply chains would take years and cost billions of dollars.
Starting Saturday, companies like General Motors, Ford Motor Company, and others will be allowed to continue importing tariff-free USMCA-compliant parts from Canada and Mexico. However, they’ll still have to pay a 25% tariff on parts that are non-compliant with USMCA rules. That said, automakers can apply for exemptions from the U.S. government based on how much of their vehicles are made with USMCA-compliant content.
These exemptions would cover tariffs on non-compliant parts as long as they don’t exceed a certain threshold.
In its first year, the Trump administration has set a target of 85% USMCA content in vehicles. If automakers meet this target, they could receive an exemption worth up to 3.75% of the vehicle’s suggested retail price. Most U.S.-built vehicles currently contain between 70% to 80% USMCA content.
A White House document released this week stated, “Only automobiles that undergo final assembly in the United States are eligible for this calculation.” This essentially means automakers could avoid paying any penalty if they meet the content threshold. However, if the content percentage falls short, the exemption would shrink. In the second year, the content target increases to 90%, and the exemption drops to 2.5%. No exemption is mentioned for year three, raising uncertainty about whether Canadian parts will be subject to tariffs at that time.
Most Canadian parts plants—primarily located in Ontario—split shipments between U.S. and Canadian assembly plants, assuming domestic factories are running at normal capacity. Unifor, a union representing thousands of Canadian auto workers, said the revised tariff policy could still lead to job losses and disruption in both countries.
“The Trump administration has created a temporary and complex tariff offset plan aimed at protecting U.S. plants, while still treating Canada as a trade adversary instead of eliminating unfair tariffs on Canadian goods,” the union said in a statement. “This temporary fix may prevent an immediate collapse of U.S. auto production, but it delivers a serious blow to Canada’s deeply integrated supply chain.”
On Thursday, GM said the revised tariff policy could cost the company $5 billion USD this year and reduce profits by more than $3 billion.
Before these changes, the U.S. auto industry had warned that the proposed tariffs would raise car prices, reduce production, and lead to layoffs.
A research report released Thursday by Michigan-based Anderson Economic Group predicted that prices of U.S.-assembled cars could rise by $2,000 to USD 8,000 under the new tariff framework.
Consultant Patrick Anderson noted, “The adjustments help reduce the cost impact of these tariffs significantly and beneficially—at least for U.S.-assembled vehicles.” He added, “However, the cost burden remains substantial for most American cars and trucks.
