Canadian automobile parts won't be hit with Trump's tariffs

U.S. Customs and Border Protection guidance released on Thursday said automobile parts compliant with the Canada-U.S.-Mexico Agreement on trade will not be hit with President Donald Trump's tariffs.

It's the latest sign of relief for the deeply integrated North American automobile industry besieged by multiple levels of tariffs. 

Trump slapped a 25 per cent tariff on all vehicle imports to the United States last month, but made a carveout for the American-made parts of cars compliant with the continental trade pact, also called CUSMA. 

The White House originally said they were looking to develop a similar scheme for auto part imports compliant with CUSMA before those duties were set to go in place on May 3. 

Industry and experts said it would be extremely cumbersome and complicated to figure out a way to only tariff non-American components of auto parts. Auto parts can cross the border between Canada and the United States multiple times before a vehicle is finished. 

U.S. Customs and Border Protection guidance Thursday said the exemption does not apply to automobile knock-down kits or parts compilations.

The Big Three — Ford, General Motors and Stellantis — had been lobbying the Trump administration for months, saying the duties would drive up prices and devastate the North American industry. General Motors CEO Mary Barra warned on Thursday that the tariffs could cost the company up to $5 billion.

Trump gave the auto industry a bit of reprieve on Tuesday saying he just wanted to "help them endure this little transition, short term." 

He signed an executive order so that companies paying the automobile tariffs won’t see some other levies — including the 25 per cent duties on steel and aluminum — stacked on top of each other.

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 per cent of a vehicle’s retail price. The rebate would drop to 10 per cent the following year. 

The order wasn't clear about what would happen to CUSMA compliant parts but a fact sheet from the White House later suggested vehicle components under the trade pact would get some sort of break. 

"The industry has been warning, I've been warning, for three months that tariffs on auto parts would shut down manufacturing," said Flavio Volpe, president of the Automotive Parts Manufacturers' Association in Canada.

Six of the auto industry’s largest lobbying groups in the United States sent a letter to the Trump administration last week warning about the auto part duties would cause supply chain disruption and higher prices. The letter said "most auto suppliers are not capitalized for an abrupt tariff induced disruption."

"Many are already in distress and will face production stoppages, layoffs and bankruptcy," the letter said. 

Volpe said the Trump administration was facing a "stark line in the sand" with the incoming duties on auto parts. He added that "to bet against the industry that it would shut itself down would be one heck of a political risk to take."

Trump has claimed his tariffs will bring auto manufacturing back to the United States but the Canadian industry has also been developing since the early 1900s. Canada and the U.S. officially integrated the sector with the 1965 Auto Pact trade deal.

CUSMA was negotiated during the first Trump administration and included boosted supports for the North American automobile industry. 

Volpe said the change for CUSMA-compliant parts was an "acknowledgment that there was something to that argument that it was a terrible risk" to have imminent layoffs in the automobile sector.

"You can spin anything you want in this era of long lag times of macro economic effect, but you can't spin people being at home," he said. 

Stellantis confirmed Thursday it will close its auto assembly plant in Windsor, Ont. for a week starting May 5. The company said in an emailed statement that closure was due to preparations for the upcoming launch of the 2026 model year Chrysler Pacifica, Chrysler Grand Caravan, Chrysler Voyager and Dodge Charger Daytona. 

The company said it "will continue to monitor the situation."

Picture Courtesy: THE CANADIAN PRESS/Nathan Denette