US Weighs Tariff Exemptions for Canada and Mexico to Ease Market Concerns

The United States is considering granting exemptions for certain industries from the newly imposed 25% tariffs on Canadian and Mexican imports, according to Commerce Secretary Howard Lutnick. His comments on Wednesday provided a boost to automobile stocks, which had plunged the previous day, as reported by the Financial Times.

Lutnick stated that President Donald Trump is assessing which sectors might receive relief from the tariffs that took effect on Tuesday. “What he’s evaluating is which parts of the market could potentially—potentially—qualify for an exemption,” Lutnick said in an interview with Bloomberg TV. “I believe the outcome will fall somewhere in the middle—not a blanket exemption for all industries, but not a total absence of relief either.”

These remarks offered some reassurance to investors and businesses affected by the trade restrictions. Automakers, in particular, benefited, with shares of General Motors, Ford, and Stellantis rising between 3% and 5% on Wednesday.

Auto Industry Prepares for Consequences

Lutnick indicated that compliance with the 2020 U.S.-Mexico-Canada Agreement (USMCA) would be a key factor in determining tariff exemptions. “If a company adhered to the agreement, it might not be subject to tariffs,” he said. “But if it didn’t, well, that was a risk they took.”

The auto industry has been significantly impacted by the tariffs, as vehicle manufacturing relies on seamless trade between the U.S., Canada, and Mexico. Car production often involves multiple cross-border shipments of parts before final assembly. A similar effect can be potentially observed in the automobile sector stocks in India as well in the near future. 

According to Bernstein analysts, General Motors faces the greatest exposure among U.S. automakers, potentially seeing a $6.7 billion decline in cash flow next year. Ford could experience a $2.9 billion reduction, while Stellantis, which is listed in Milan, may suffer a €3.5 billion loss. European carmakers, including Volkswagen, also saw stock recoveries on Wednesday after initial drops following the tariff announcement.

Political Strains Rise

The tariff dispute has strained relations between the U.S., Canada, and Mexico. Canadian Prime Minister Justin Trudeau vowed to maintain Canada’s retaliatory tariffs unless the U.S. fully withdraws its trade measures against Ottawa. Responding on Tuesday, Trudeau criticized Trump’s decision as “a very dumb thing to do” and swiftly implemented a 25% tariff on C$30 billion (US$21 billion) worth of American imports.

Meanwhile, Mexican President Claudia Sheinbaum opted to delay immediate retaliation, stating that she plans to discuss the issue with Trump in a meeting on Thursday.

Tensions escalated further when U.S. Treasury Secretary Scott Bessent remarked on Fox News that Trudeau was “a lame duck” and “a dead man walking” following his resignation earlier this year.

Future Trade Talks on the Horizon

While immediate attention is focused on possible tariff relief, Lutnick hinted that a broader renegotiation of the USMCA could take place next year. The White House has also suggested that additional duties may be imposed on imports from Brazil, India, Japan, and the European Union as part of Trump’s “reciprocal” trade policy initiative.

The potential for tariff exemptions is also being linked to broader geopolitical concerns, particularly efforts to combat fentanyl smuggling. Lutnick suggested that any tariff relief granted to Canada and Mexico would likely be temporary—possibly lasting just a month—depending on their cooperation in curbing the illegal opioid trade into the U.S.

“If they successfully stop the flow of fentanyl, the president is open to considering exemptions,” he said. “There will still be tariffs—let’s not fool ourselves. But maybe, just maybe, he’ll hold off on enforcing them until at least April 2.”

The White House is expected to provide further details on potential exemptions later this week.