29 March: Despite securing protections under the 2018 U.S.-Mexico-Canada Agreement (USMCA), both Canada and Mexico are now facing potential 25% U.S. auto tariffs as President Donald Trump revives earlier trade measures. The new tariffs, which take effect on April 3, stem from Trump’s first-term Section 232 national security investigation into automotive imports, yet they make no mention of the USMCA side letters that were supposed to shield Canada and Mexico.
Under those side agreements, both countries were granted a 60-day grace period and then annual duty-free quotas of 2.6 million passenger vehicles and unlimited light truck exports to the U.S. Canada was also granted a US$34.2 billion auto parts quota, while Mexico received a US$108 billion quota. Even vehicles and parts not compliant with USMCA rules of origin were to face no more than a 2.5% tariff — the rate in effect as of August 1, 2018 — if the agreement terms were honored.
However, the White House has not acknowledged these prior commitments. Instead, officials stated that Canadian and Mexican-built vehicles would be subject to the full 25% duty unless they contain U.S.-origin parts, which would be exempt based on a yet-to-be-determined valuation process. There is currently no deadline for the Commerce Department to complete this assessment.
Auto industry lobbyists and trade analysts are raising concerns about the legality of these tariffs, especially as some believe the deadline for enforcing the Section 232 investigation may have expired in 2019. Meanwhile, Canada and Mexico are reviewing their legal options. Canada confirmed the validity of the USMCA side letters in a statement and indicated it would pursue retaliatory tariffs if the U.S. actions are deemed inconsistent with USMCA or WTO obligations. Mexico’s undersecretary for foreign trade, Luis Rosendo Gutierrez, also said they are analyzing the situation from a legal and economic standpoint.
Trump has defended the tariffs as a strategy to boost U.S. manufacturing and reduce dependency on foreign parts, stating that “America cannot just be an assembler of foreign-made parts.” The U.S. Trade Representative’s office and Commerce Department have not responded to questions on whether the USMCA side-letter provisions would be upheld.
The original intent of the side letters was to avoid precisely this scenario — forcing Canada and Mexico back to the negotiating table under the pressure of looming tariffs. The letters are still publicly available on the USTR website and were key in finalizing the USMCA deal.
Trade experts say this approach mirrors Trump’s earlier reversal of steel and aluminum tariff exemptions granted to Canada and Mexico in 2019. The overarching goal, they say, appears to be driving up domestic investment, reconfiguring trade quotas, and blocking Chinese automakers from entering the North American supply chain.
While Canadian Prime Minister Mark Carney held a constructive call with Trump last week, it resulted in no assurances or tariff relief. Carney, however, made it clear that Canada is prepared to respond with reciprocal measures if needed.
