U.S. President Donald Trump will exempt automakers from his punishing 25% tariffs on Canada and Mexico for one month as long as they comply with existing free trade rules, the White House said on Wednesday, a development that halted at least for now Wall Street's steepest skid in nearly three months.
Trump is also open to hearing about other products that should be exempted from the tariffs, which took effect Tuesday, the White House said.
But Trump made clear he was not calling off his trade war with Canada and Mexico as he pressures both countries to deter fentanyl smuggling. After a phone call with Canadian Prime Minister Justin Trudeau, Trump said he was not convinced the situation had improved.
"He said that it's gotten better, but I said, 'That's not good enough,'" Trump wrote on his Truth Social platform. "The call ended in a 'somewhat' friendly manner!"
Public data shows only 0.2% of all fentanyl seized in the U.S. comes from across the Canadian border, while the vast majority originates from the southern border.
Canada is willing to reduce its retaliation to U.S. tariffs if the Trump administration drops some of the tariffs it has imposed, a Canadian government source said.
Negotiations between Ottawa and Washington were continuing, and no deal had yet been reached, the source, who spoke on the condition of anonymity, cautioned.
The one-month reprieve sparked a rebound in auto stocks, but trade tensions have created uncertainty for U.S. corporations and sapped consumer confidence, leading to a selloff in stocks in recent days.
General Motors (GM.N), opens new tab shares were up 7.2% and Ford (F.N), opens new tab gained 5.8% on Wednesday, but both shares are still down on the year.
Trump's tariffs pose extreme difficulties for automakers, which produce vehicles in all three countries and often ship parts across North American borders multiple times as they get built into systems and finished vehicles.
A one-month exemption for cars and trucks that comply with the U.S.-Mexico-Canada Agreement's complex content rules, as Trump has outlined, would be a boon for Ford, GM and Stellantis (STLAM.MI), opens new tab.
Trump also might eliminate the 10% tariff on Canadian energy imports, such as crude oil and gasoline, that comply with the USMCA rules of origin, a source familiar with the discussions said.
Agriculture Secretary Brooke Rollins told Bloomberg it was "to be determined" whether specific agricultural products such as potash and fertilizer might be carved out, saying "everything is on the table."
Trump's tariffs have damaged relations between the three trading partners. Canada has hit back with tariffs of its own on selected U.S. imports, while Mexico has vowed to retaliate as well.
Mexican state-run oil company Pemex is in talks with potential buyers in Europe and Asia, including China, as it seeks alternative markets for its crude after Trump's tariffs, a senior Mexican government official said. Nearly 60% of Pemex's exported barrels went to the U.S. last year.
BOON FOR DETROIT
Fentanyl is responsible for most drug overdose deaths in the U.S., which have exceeded 100,000 annually in recent years. U.S. officials say Canada and Mexico are conduits for shipments of the drug and its precursor chemicals into the U.S. in small packages not often inspected by customs agents.
The tariffs threaten to derail Canada's fledgling economic recovery and could trigger a recession. The country relies on the U.S. for 75% of its exports and a third of all imports.
Canada could potentially use oil and gas exports as a lever in negotiations if U.S. tariffs escalate, Foreign Minister Melanie Joly told a Toronto business audience on Wednesday.
"There's too much unpredictability and chaos coming out of the White House right now," Joly told reporters, adding that Canada could not "go through this psychodrama every 30 days."
Trade tensions already may be hurting the U.S. New data on Wednesday showed slowing payroll growth as well as lower wage growth for workers who switch jobs, while a separate Federal Reserve report found widespread uncertainty among U.S. businesses about Trump's policies. The Fed's "Beige Book" report showed some businesses were not waiting for tariffs to take effect to raise prices.
The dollar hit three-month lows on Wednesday, while U.S. stock indices, which had fallen steadily this week, found a temporary footing. The benchmark S&P 500 index rose 1.1%, retracing about a third of its decline from the previous two days.
Trump has also imposed an extra 10% duty on Chinese goods, and China has responded with additional tariffs of its own.
The tariffs could spell trouble for Detroit's big money maker - pickup trucks - barring a long-term deal.
One analysis suggested the levies would add an average of $3,000 to vehicles and up to $7,000 on nameplates coming from Mexican and Canadian plants. That would be a blow to buyers who, according to an Edmunds survey, typically lean Republican.
Trump's announcement came one day after a phone call with the CEOs of Ford, GM and Stellantis.
Vehicles made by the three companies comply with the USMCA's rules that require 75% North American content to get duty-free access to the U.S. market.
The rules also require 40% of a passenger car's content to be manufactured in the U.S. or Canada, based on a list of "core parts" including engines, transmissions, body panels and chassis components. The threshold for pickup trucks is 45%.
"Ford, GM and Stellantis applaud President Trump for recognizing that vehicles and parts that meet the high U.S. and regional USMCA content requirements should be exempt from these tariffs," said Matt Blunt, president of the American Automotive Policy Council, which represents the three companies.
Automakers support boosting U.S. investment but want certainty over tariff policies and vehicle emissions rules before making dramatic changes, two industry sources said.
An exemption also would benefit some foreign brand automakers with large U.S. production footprints, including Honda (7267.T), opens new tab and Toyota (7203.T), opens new tab, but some competitors that don't comply would have to pay the full 25%.
