The Trump Administration is exempting CUSMA-compliant auto parts from 25% tariffs that were set to go into effect May 3.
The exemption is the latest in a growing number of unilateral concessions offered by the U.S. as tariffs – and the fear of tariffs – cause escalating damage to supply chains, business investment, and consumer confidence. There is now a clear pattern of the Trump Administration imposing tariffs, backing down when the market reacts negatively, threatening further tariffs, and then backing down further when the market drops again. On the present course, this will lead to a steady drawdown of tariffs, albeit with significant economic pain caused along the way. As noted by Jeffrey A. Sonnenfeld and Steven Tian of Yale, uncertainty caused by U.S. trade policy is paralyzing investment:
“The paralysis of hundreds of billions in business investment is already trickling through to the broader economy: NFIB Small Business confidence has plunged 50%, the labor market is deteriorating as the number of new layoffs quadrupled over the last three months, capital spending and investments have come to a standstill, and GDP growth forecasts have come down by 1%—but the downward cycle is just getting started. The long-term economic consequences from the paralysis of business investment would be absolutely devastating. After all, U.S. businesses account for a whopping 88% of U.S. GDP growth every year and are responsible for 85% of U.S. workforce hiring, so what is at stake amounts to tens of trillions of lost investment, and millions of lost jobs.”
Given the deep economic ties between Canada and the U.S., a weakened U.S. economy will hurt Canada’s economy. This can be partially, though not fully, mitigated through expanded interprovincial trade and deeper trade ties with more reliable partners. Still, the auto parts tariff exemption is good news for Canadian autoworkers and parts makers and could provide a more positive foundation for upcoming talks between Prime Minister Mark Carney and President Donald Trump.
Spencer Fernando
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