(Bloomberg) -- President Donald Trump will exempt Mexican and Canadian goods covered by the North American trade agreement known as USMCA from his 25% tariffs, offering major reprieves to the US’s two largest trading partners.
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The pause on the tariffs, which are related to illegal immigration and fentanyl tracking, will expire on April 2, according to Commerce Secretary Howard Lutnick. That is the date when the president is expected to start unveiling plans for so-called reciprocal duties on nations around the world as well as sector-specific duties.
“Hopefully Mexico and Canada will have done a good enough job on fentanyl that this part of the conversation will be off the table” when the new tariffs kick in, Lutnick said in a statement.
Automobiles and parts that meet USMCA requirements, will be among the products exempt from the tariffs. Canadian potash used heavily in fertilizers for US agricultural producers is expected to face a lower, 10% duty. The White House estimates that 62% of Canadian imports will still be subject to the tariffs, most of which are energy products that are being tariffed at a 10% rate, and half of goods coming from Mexico. A White House official cautioned those proportions could change as importers rush to comply with the new rules.
The decision is a significant reversal by Trump, who on Tuesday had announced the largest tariff increase in a century only to back down 48 hours later as stocks were hammered and Republicans expressed concern about the economic consequences.
The president downplayed the market reaction, saying that foreign countries are “ripping us off” and that the tariffs would put the US on a stronger footing.
“There’ll always be a little short-term interruption. I don’t think it’s going to be big,” Trump said.
Exempting automobiles from the tariffs was done in order to minimize disruption to the industry and auto workers, according to the White House official. The US, Mexico and Canada have a deeply integrated auto supply chain and Detroit’s Big Three car companies had lobbied the administration for weeks for a carve out.
Trump decided to pare back the tariffs after speaking to Mexican President Claudia Sheinbaum, Canadian Prime Minister Justin Trudeau and auto company executives.