USMCA Qualifying Cars Spared Temporarily From 25% Tariffs

Although President Donald Trump said he granted this exception after lobbying from Ford, GM and Stellantis, it's going to apply to all Mexican and Canadian cars and trucks that qualify under USMCA.

According to a 2024 report from the Office of the U.S. Trade Representative, in 2023, 8.2% of vehicles didn't claim USMCA tariff benefits; the report said 90% of those were imported under subheading 8703.23 (vehicles for the transport of persons with a spark-ignition engine with a cylinder capacity greater than 1.5L but less than 3L) from Mexico.

Leila Afidi Afas, director of global policy for Toyota, said after the announcement that Toyota's vehicles are fully compliant with USMCA, and the company is hopeful about the pause, though it has questions about what happens after the 30 days are up. Afas was speaking at a Brookings Institution program on North American trade.

A spokesperson at the White House was unsure whether motor vehicle parts that originate in Mexico or Canada and meet rules of origin also would be spared from tariffs; Afas, too, said that Toyota and major auto parts suppliers want to see the instructions to CBP, to see whether the exemption covers parts.

The American Automotive Policy Council, which represents Detroit's Big Three, issued a statement that said parts meeting the agreement's rule of origin would be included.

“American Automakers Ford, GM and Stellantis applaud President Trump for recognizing that vehicles and parts that meet the high US and regional USMCA content requirements should be exempt from these tariffs. We look forward to working with President Trump and his administration on our shared goals of increasing US automotive production and expanding exports to markets all around the world.”

Afas noted that Toyota has slated $14 billion to open a massive advanced battery factory in North Carolina, which would employ 5,000 when completed. Those batteries could be installed in electric vehicles, plug-in hybrids or hybrids, and the first completed batteries came last month. She did not mention policy continuity for green energy, but the plant also would benefit from 45X manufacturing tax credits under Biden's Inflation Reduction Act.

She said a free trade agreement is just a piece of paper unless companies decide to invest based on the FTA benefits.

"What brings (free trade agreements) to life is the decisions companies make. We are making what are multibillion-dollar, multi-decade investment decisions based on the terms of that agreement ... that is foundational. It's the ability to trust that the rules that are in place when you make these decisions, the decisions [that] are made, remain in place for at least the lifecycle of those decisions."

Afas gave an example of why parts trade also should be duty-free. She said Toyota imports components from Mexico to build engines in Kentucky. Those completed engines are sent to Canada, where they are installed in RAV4s, which are then brought back to the U.S.

She said the "vast majority of components" in that Canadian-assembled RAV4 are made in the U.S.

She also noted that U.S.-built Toyotas are exported to 60 other markets, which shows that an integrated North American auto sector is "able to produce at a price that is competitive in these third-country markets."

Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, criticized the quick reversal for one of the most traded sectors, saying that Trump is making the country "into an international joke."

He added: "If Republicans in Congress allow him to keep this up, Trump will keep yo-yoing on tariffs and using threats to pressure U.S. companies to stay in line...."