Trump's tough rhetoric falters as majority of Canadian and Mexican goods remain unaffected by new tariffs
The United States-Mexico-Canada Agreement (USMCA) has been in effect since 2020, replacing NAFTA as the key North American trade agreement. This agreement generally eliminates tariffs on qualifying Canadian and Mexican goods traded with the US in industries including automotive, steel, and energy, maintaining duty-free treatment for products meeting the agreement’s rules of origin and other requirements.
Under the USMCA, no tariffs are paid on more than 84% of Mexico's trade with the US, and over 85% of Canada-US trade continues to be tariff-free. However, non-USMCA-compliant goods face substantial tariffs, including 25% or higher rates.
In the automotive industry, USMCA requires that cars and auto parts meet certain local content rules to be tariff-free. Only vehicles and parts that comply with these rules qualify for duty-free treatment. Non-compliant imports from Mexico or Canada face a 25% tariff, although this can be higher in some recent US tariff actions.
The US has imposed separate tariffs on steel and aluminum imports from Canada and Mexico outside of USMCA terms. For example, a 50% tariff applies to steel, aluminum, and copper products from Mexico when non-compliant with USMCA. Canada faces a 50% tariff on these products under recent US executive orders.
In the energy sector, imports of oil and energy from Canada and Mexico have generally been exempt from the highest tariff rates. However, the US has enforced anti-transshipment tariffs (40%) to prevent avoidance of duties.
Recent developments show that the US has escalated tariffs beyond USMCA's framework, targeting non-compliant imports with rates as high as 35% (Canada) and 25% or more (Mexico), while USMCA-compliant goods retain exemption from these tariffs.
The current 25% tariff rates on Mexican goods target a small slice of trade, and most goods traded between the US, Mexico, and Canada continue to be tariff-free, provided they meet rules of origin. However, certain major Canadian industries, such as autos, steel, aluminium, copper, pharmaceuticals, semiconductors, and softwood lumber, are being severely impacted by US trade actions.
President Trump has entered into a 90-day negotiating period with Mexico, and there is a possibility that the USMCA may be renegotiated. The USMCA is up for review next year.
Despite the tariff increases, President Claudia Sheinbaum of Mexico stated that the country is still in a favorable position due to the USMCA in the new commercial world order. Almost 90% of Canadian exports reached the US duty-free in April.
In conclusion, while the USMCA provides preferential tariff treatment for compliant Canadian and Mexican goods in the automotive, steel, and energy sectors, goods failing to meet the agreement’s rules face increased tariffs resulting from recent US policy and national emergency tariffs, significantly impacting trade flows and prices. The future of the USMCA remains uncertain, with potential renegotiations on the horizon.
- In the realm of politics and general-news, there are ongoing discussions about the potential renegotiation of the USMCA, which could impact business and finance across North America, especially in industries such as automotive, steel, and energy.
- Non-compliance with the USMCA rules of origin can lead to substantial tariffs for goods in various sectors including automotive, steel, aluminium, copper, pharmaceuticals, semiconductors, and softwood lumber, thereby affecting the overall finance and economy of Canada and Mexico, as well as the broader business landscape.
