The new 25% tariffs on Mexico and Canada could add between $3,000 and $10,000 to vehicle costs|Joe Ross|CC BY-SA 2.0

The White House granted automakers a 30-day exemption from new tariffs on vehicles imported from Mexico and Canada under the USMCA trade deal. The announcement came a day after President Donald Trump’s levies on the two neighboring nations were enacted.

The decision was made after Ford, General Motors, and Stellantis met with the administration yesterday and warned that tariffs would raise prices by several thousand dollars and negatively affect the auto industry. They are concerned about long-term supply chain risks.

The exemption applies to all qualifying vehicles from those countries, not just Detroit-based automakers.

Despite the temporary relief, tariffs could still disrupt the industry. The new 25% tariffs on Mexico and Canada could add between $3,000 and $10,000 to vehicle costs.

But retaliatory tariffs are still in effect
Even after the delay, Canada plans to impose 25% tariffs on $100 billion of US imports. Prime Minister Justin Trudeau demands the US remove all levies.

Mexico is also preparing retaliatory measures. Additionally, China announced new duties on US agricultural goods.

President Trump defended the tariffs, citing economic reform and national security concerns, urging automakers to invest more in the US.

Tariffs fuel stagflation fears
Analysts fear that duties on imports can cause inflation to rise and slow growth, leading to stagflation—something the US hasn’t seen since the 1970s and 1980s.

The move by President Trump disrupts business investment and squeezes household incomes as wages and employment growth decline.

It poses a tough choice for the Federal Reserve as higher inflation calls for rate hikes, but slowing growth demands cuts. 

Some experts warn the economy could slip into a recession if tariffs remain.