March 6, 2025
U.S. President Donald Trump on Thursday exempted goods from both Canada and Mexico under a North American trade pact for a month from the 25% tariffs that he had imposed earlier this week, the latest twist in fast-shifting trade policy that has whipsawed financial markets and business leaders.
The exemption, which will expire on April 2, covers both of the two largest U.S. trading partners. Trump had earlier only mentioned an extension for Mexico, but the amended tariffs order – initially issued on Tuesday – covers Canada as well.
Mr. Lutnick earlier Thursday said he expected Mr. Trump would grant this temporary exemption to most imports from Canada and Mexico until April 2.
Most of Canada and Mexico’s trade with the United States happens under the auspices of the USMCA, although there are outliers.
Within the auto sector, the proportion of trade occurring outside the free trade agreement has increased since North American auto content rules were tightened under the USMCA compared to its predecessor, the North American Free Trade Agreement. In effect, a small but growing proportion of Canadian and Mexican companies have been choosing to pay a relatively low 2.5 per cent Most Favoured Nation tariff applied to non-USMCA autos coming into the U.S., rather than comply with the stricter rules surrounding origin.
In 2019, only 0.5 per cent of auto imports to the U.S. from Mexico and Canada paid MFN tariffs. That rose to 8.2 per cent in 2023. For auto parts, the proportion has more than doubled from 9.3 per cent in 2019 to 20.5 per cent in 2023. The vast majority of these non-USMCA-compliant autos come from Mexico, according to U.S. data.
The Canadian government has rejected Mr. Trump’s allegations about Canada being a major source of fentanyl reaching the United States.
Citing U.S. Customs and Border Protection data, the White House has asserted that 43 pounds of fentanyl was intercepted at the border last fiscal year, marking a “massive 2,050 per cent increase” compared with the year prior, when two pounds of the deadly synthetic drug was seized.
However, a recent Globe and Mail investigation determined that the northern-border data set doesn’t reveal anything about the origin of the drugs and, in fact, includes fentanyl that came from Mexico. The fentanyl moving from Canada into the United States is a tiny fraction of the thousands of pounds of the illicit drug trafficked into American territory each year.
