On the Dash:
- U.S. and Canadian negotiators are considering cutting the tariff on Canadian vehicles from 25% to 15%.
- Broader North American content deductions could push effective tariffs on some vehicles into the single digits.
- A deal could improve the competitiveness of North American-built vehicles against imports from Japan, South Korea and Europe.
U.S. and Canadian negotiators are weighing a proposal to lower the tariff on Canadian-built vehicles from 25% to 15%, according to three sources familiar with the talks who spoke with Reuters. The reduction would mark a significant cut from the current 25% Section 232 tariff on auto imports, which has threatened shutdowns at Canadian assembly plants.
While the U.S. wants to deduct only the value of U.S.-specific content when calculating the tariff, negotiators said, Canadian negotiators want the deduction to cover all North American content, including parts made in Canada and Mexico. According to auto industry officials, a broader regional deduction could push the effective tariff on North American-built vehicles into single digits.
Notably, a 15% tariff would ease pressure on Canadian vehicle production and could help prevent further disruptions on assembly lines. Broader content deductions could also give North American-built vehicles a meaningful cost advantage over imports from Japan, South Korea and Europe. Japan, South Korea and the European Union currently face a 15% U.S. auto tariff, while most British vehicles carry a 10% tariff.
Additionally, the U.S. and Canada are also negotiating disputes over Canadian retaliatory tariffs on U.S. autos and steel. Other sticking points include Canada’s treatment of U.S. liquor and dairy import quotas. The two countries face a Wednesday deadline before the U.S. imposes new tariffs on roughly $20 billion of additional Canadian goods. However, the automotive discussions remain separate from the broader USMCA renewal talks.
