Goods That Claim USMCA Preference Spared From 25% Tariff March 7

Trump, just before he signed the orders, said that the scope of this tariff action is relatively small, compared with what's coming April 2.

"We'll be talking about that to be a big game changer for our country, because we've been ripped off by every country in the world, and now whatever they charge us, they charge us 150, 200 percent and we charge them nothing. So whatever they charge us, we're going to charge them, and there'll be no getting out of it."

Although he said that there will be no exceptions to the reciprocal tariff actions, there is no end date in the orders to the carve-outs for USMCA-qualifying goods.

In 2024, $406.7 billion worth of imports from the two countries entered under USMCA, while $509.7 billion was imported without claiming the preference.

It's unknown what percentage of the imports where brokers did not include the "S" marker could qualify as originating under the rules of the deal, but the producer didn't bother because the tariff rate was zero, or because a tariff rate of less than 5% was not seen as worth the compliance cost to meet the rules of origin, or to obtain the records from suppliers to prove applicability.

According to International Trade Commission data for imports from Mexico in 2024, ranked by value, high to low:

• 84% of vehicle parts and vehicles claimed the preference
• 18% of Chapter 84 machinery claimed the preference
• 51% of televisions, their parts and other electronics in Chapter 85 claimed the preference
• 7% of Chapter 90 goods, which include fiber optic cables, optical and surgical equipment, claimed preference
• 37% of oil and gas claimed preference.

According to ITC data for imports from Canada in 2024, ranked by value, high to low:

• 24% of oil and gas claimed the preference
• 90% of vehicles and parts claimed the preference
• 28% of Chapter 84 machinery claimed the preference
• 2% of goods returning after repair claimed the preference
• 95% of plastics and plastic items claimed the preference.

The smallest value in these top-5 lists was almost $14 billion, for annual plastics imports, with vehicles and vehicle parts topping $135 billion for Mexico. That includes heavy-duty trucks and buses, not just cars and light trucks. Canada's most valuable export was $124 million worth of oil and fuels made from oil.

Goods produced entirely in Mexico or Canada -- like crops [other than crops the U.S. protects like sugar], livestock, minerals and scrap collected in their countries -- qualify for duty-free entry. Crude oil produced in Canada qualifies, as long as the diluent used to smooth its way through pipelines is either from one of the three countries, or the diluent is no more than 40% of the volume of the liquid.

The executive order says that potash that doesn't qualify for USMCA benefit would be subject to a 10% tariff, but it's not clear why a mined product wouldn't be considered originating.

Many products can qualify through tariff shifts, as long as half of the net cost of the good comes from the region. Other products, like chemicals, metals, cars and trucks and high-value components of cars and trucks, have involved rules of origin.

This was the second day in a row that the White House, or Trump himself, via social media, announced major changes to the scope of the tariff action, with hours or even more than a day of delay on details for importers on when the changes begin.

Each bit of news caused the stock market to gyrate.

Trump denied it was the stock market reaction that convinced him to soften the action against the two top trading partners for the U.S.

"No, nothing to do with the market," he told a reporter at the White House. "I'm not even looking at the market, because long term, the United States will be very strong with what's happening here."

He also said stocks drop for "globalist ...companies that won't be doing as well because we're taking back, things that have been taken from us, many years ago." He said he made the modification because he didn't want to hurt American auto companies. Trump first said there would be a carve-out only for the automotive sector after a phone call with the CEOs of Ford, GM and Stellantis. Stellantis is no longer U.S.-owned, but is part of the traditional Detroit Big Three.

A reporter asked if he would consider a similar carve-out for Mexican and Canadian cars and parts meeting the USMCA rule of origin when auto-specific tariffs come later in the year. Trump said the CEOs asked, "'Could we have some help on the tariffs because of the speed?' And I said, 'Look, I'm going to do it, but that's it.' They'll come back to me after the second. April 2. I don't want to hear from you after April 2. We're not going to be doing it." He claimed that seven new plants would be built because of his tariffs.

A White House official on a background call with reporters shared a statement from Commerce Secretary Howard Lutnick, which said that the auto industry led the way to getting this change to the tariffs, "but also Canada and Mexico have done a good job offering us ever more work to prove to us [that] they're going to cut the fentanyl deaths. On April 2, we're going to move into the reciprocal tariffs, and hopefully Mexico and Canada will have done a good enough job on fentanyl that this part of the conversation will be off the table, and we will move just to the reciprocal tariff conversation."

Trump, who announced that he would carve out USMCA-qualifying goods for Mexico hours before he agreed to offer a reprieve for Canadian goods, continued to praise Mexico and slam Canada as he spoke with reporters when he was signing the amendments to the executive order.

As he explained the need for a reciprocal tariff approach, he said, "I'll tell you what's a high-tariff nation -- it's Canada. Canada charges us 250% for milk products and other products, and a tremendous tariff with lumber and things as such."

Canada has high tariffs outside of tariff rate quotas for dairy; the U.S., too, requires that Canadian or Mexican exporters work within tariff rate quotas for dairy, as well as cotton, peanut butter, sugar and chocolate products.

There is no tariff on many lumber products in Canada, but the U.S. has long believed that government policies on forestry management give an unfair subsidy to Canadian softwood lumber exporters, and has antidumping and countervailing duties on that product. The administration says tariffs will be hiked on partners' exports for subsidies and other non-tariff trade-distorting policies.

Democrats on the House Ways and Means Committee reacted to the announcements with frustration. They have introduced bills both to clarify that the International Emergency Economic Powers Act cannot be used to raise tariffs on major allies and free-trade-agreement partners, as well as a specific veto of the emergency declarations that underlie the tariffs on Canada and Mexico (see 2503060012).

Rep. Don Beyer, D-Va., issued a statement that said, "Trump is jerking around the entire continent of North America right now, it’s stupid, and it has to stop."

He noted that because the announcements are made before official details are published, importers don't even know yet how it will affect them.

“This inane back-and-forth will impose severe economic costs on our nation as we lose credibility with our trading partners," he said, adding that the chaos is causing businesses to delay hiring and purchases.

Rep. Suzan DelBene, D-Wash., issued a statement that said, "This is particularly threatening to Washington’s economy, where 4-in-10 jobs are tied to trade, and our supply chains are deeply linked with Canada. Republicans are silent on Trump’s executive overreach while Americans foot the bill."

The top Democrat on the House Ways and Means Committee and the top Democrat on the House Foreign Affairs Committee are also co-sponsoring the rejection of the emergency declaration, but no Republicans are co-sponsors.

“Trump keeps touching the hot stove and unfortunately, Republicans are refusing to do the smart thing which is to turn off the damn stove,” Beyer said.