On March 26, 2025, United States President Donald Trump signed an executive order imposing new tariffs under section 232 of the Trade Expansion Act of 1962 on foreign passenger vehicles and light trucks ("automobiles") and certain automobile parts, on the asserted basis that "that automobiles and certain automobile parts are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States." The order further notes that the USMCA has "not yielded sufficient positive outcomes" and that the national security threat posed by these imports "remains and has increased".
Tariffs on automobiles will come into force on April 3, 2025, while tariffs on the relevant automobile parts will be implemented no later than May 3, 2025. The targeted automobile parts include engines and engine parts, transmissions and powertrain parts, and electrical components.
Application of the new tariffs
The new tariffs will impose a 25% duty on all imported automobiles, regardless of origin. Unlike the exemption from the March 4, 2025 25% blanket tariff (10% for energy goods) for CUSMA/USMCA-originating goods, these new tariffs will immediately apply to CUSMA/USMCA-originating automobiles. However, importers of CUSMA/USMCA-compliant automobiles can exclude the value of US content from the duty calculation. The executive order specifies that "'US content' refers to the value of the automobile attributable to parts wholly obtained, produced entirely, or substantially transformed in the United States."
While excluding the value of US content may help reduce the impact of the duties on importers, the process of determining the origin of various automobile components and their value is a daunting and labour-intensive task. And there is no room for error. All origin claims must be substantiated through submitting documentation to the US Secretary of Commerce. If US Customs and Border Protection determines that the importer has overstated the US content in the automobile, significant punitive measures will be imposed: the 25% duty will apply to the full value of the automobile, regardless of the actual US content. This assessment will be retroactive to April 3, 2025 and will apply prospectively to all vehicles of the same model imported by the same importer. Additional fees, penalties, and interest may also apply in relation to duties deemed owed.
The executive order contemplates applying the 25% duty to imports of the targeted automobile parts as well as automobiles, but temporarily suspends this tariff in relation CUSMA/USMCA-originating parts until a mechanism for calculating US value content similar to the automobile exclusion is established, which is required by no later than May 3, 2025.
The executive order also provides that within 90 days, the Secretary of Commerce will establish a process for adding further automobile parts to the list of items subject to these tariffs. This process will allow domestic producers of automobiles or automobile parts, or their industry associations, to request that additional parts be included on the basis that they pose a threat to national security.
Impact of the duties
The impact of the duties is likely to be extremely significant. The US, Canada, and Mexico have, by design, highly integrated automobile manufacturing systems and supply chains, with parts crossing borders multiple times during the production of a single automobile. Splitting this supply chain will likely dramatically increase costs, both in the short and long term. Furthermore, there are certain automobiles that are manufactured solely in Canada or Mexico for the North American market.
In addition, European-based manufacturers with operations in the United States rely almost entirely on imported parts from facilities in the European Union. The order risks having devastating effects on these companies and on any automobile manufacturer that is not fully localized within the United States.
Potential recalibration
There is some suggestion that the US administration may ease the impact of these tariffs with respect to Canada following a call from US Commerce Secretary Howard Lutnick to Ontario Premier Doug Ford on the evening of March 26, 2025. Ontario anticipates unspecified further relief that could give Canadian and Ontario automakers a significant competitive edge, particularly based on US content in automotive parts.
While any such adjustments may not eliminate the tariff's effects, they will reduce the relative impact compared to other global competitors. Ontario is continuing to engage with the U.S. administration, with updates expected around April 2, 2025.
Canada appears to be holding off on retaliation for now
Premier Ford emphasized the importance of a coordinated Canadian response and suggested possible retaliatory measures. He underscored the need for a unified approach with the federal government and other provinces, stressing that Canada must stand firm against US pressures, even if it results in some economic pain.
Canadian Prime Minister Mark Carney has cancelled campaign events in the face of this announcement and called an emergency meeting to discuss potential responses. He confirmed on March 27, 2025 he intends speak with President Trump within the next few days. Carney reiterated that Canada's response will depend on the next set of tariffs ― reciprocal tariffs expected to be announced April 2 ― with a focus on two key conditions: respect for Canada's sovereignty and a comprehensive discussion on economy and security. Carney declined to reveal specific countermeasures, stating it would be premature to disclose them before the negotiations and the full scope of measures becomes clearer.
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