Trump exempts Mexican and Canadian goods from USMCA tariffs in major policy shift

President Donald Trump announced that goods from Mexico and Canada, covered by the US-Mexico-Canada Agreement (USMCA), will be exempt from his previously imposed 25% tariffs. This decision offers significant relief to the U.S.'s two largest trading partners and provides a temporary break until April 2. On this date, Trump plans to introduce reciprocal duties on countries worldwide, alongside sector-specific tariffs.

President Donald Trump.

Photo by Annabelle Gordon for The Washington Post via Getty Images

Trump signed executive orders Thursday to reduce tariffs, which were originally tied to concerns over illegal immigration and fentanyl trafficking. While USMCA-compliant automobiles and parts are exempt from the new duties, Canadian potash, widely used in U.S. agriculture, will face a lower 10% tariff. The White House predicts that 62% of Canadian imports will remain subject to tariffs, primarily on energy products, while around 50% of goods from Mexico will be affected. The exact numbers may fluctuate as businesses adapt to the new rules.

Trump made it clear that the exemption for the automotive industry will be short-lived, warning that no further extensions would be granted. "This is a temporary deal," he said, advising automakers not to request more relief after April.

The president's decision marked a swift reversal from his announcement on Tuesday of a century-high tariff increase. Just 48 hours later, amid stock market declines and concerns from Republicans about economic fallout, Trump scaled back the tariff increase.

“I’m not concerned about the market,” Trump said, emphasizing that foreign nations have been “ripping us off” and that the tariffs would ultimately benefit the U.S. “There will always be some short-term interruptions, but I don’t think it will be significant,” he added.

The exemption for automobiles was aimed at minimizing disruptions to the auto industry, particularly given the deep integration of the U.S., Mexico, and Canada’s automotive supply chain. Detroit’s major automakers had lobbied the administration for this carve-out.

Trump’s decision followed talks with Mexican President Claudia Sheinbaum, Canadian Prime Minister Justin Trudeau, and auto industry executives. As a result, Canada postponed its planned second round of retaliatory tariffs against the U.S., though it maintained duties on approximately $20.9 billion worth of U.S. goods.

Commerce Secretary Howard Lutnick hinted at the exemption earlier in the day, noting that both Mexico and Canada had shown significant progress in combating fentanyl trafficking, a key issue driving the tariffs. Trump had previously tied the tariffs to commitments from these countries to address drug trafficking and illegal migration into the U.S.

During a press conference, Sheinbaum emphasized Mexico’s efforts to curb fentanyl trafficking, telling reporters that she had conveyed these results to Trump. “I assured him that we are making progress,” Sheinbaum said, also stressing the importance of continued dialogue between the two nations.

According to U.S. Census data analyzed by Bloomberg Economics, nearly half (49%) of U.S. imports from Mexico are exempt from the tariffs under the USMCA. An additional 41% of goods fall into a grey area, with some possibly affected by changes to the “most-favored nation” status. These changes could encourage suppliers to comply with USMCA rules to avoid the 25% duties.

Previously, Trump had granted a one-month exemption for automobiles covered by USMCA and had considered extending the relief to specific agricultural imports before opting for broader tariff reductions.

This latest move comes after a tumultuous week in which Trump imposed 25% tariffs on most goods from Mexico and Canada (excluding Canadian energy products, which faced a 10% duty) and increased tariffs on China from 10% to 20%. The decision prompted Canada to retaliate with tariffs on $20.9 billion in U.S. goods.