An exemption spares Canada and Mexico from most tariffs imposed on goods. Although Mexico is currently in negotiations with the U.S. government, last week, President Donald Trump handed down 35% duties for goods coming out of The Great White North.
USMCA origins and exemptions
It dates back to Trump’s first term, when he struck a deal with the two neighboring countries, exempting them from certain tariffs. That agreement led to the 2020 launch of the United States-Mexico-Canada Agreement, or USMCA, which aims to create a fairer trade environment for American workers by tightening rules on how cars and other goods are produced.
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The exemption opens more doors for U.S. farmers and food producers, updates protections for digital content and services and strengthens safeguards for American ideas and inventions. It also adds new rules on clean business practices, clearer regulations and ways for smaller companies to benefit from trade across borders.
How the agreement affects trade rules
Under the USMCA, Mexico and Canada are exempt from many tariffs, but only if the products meet specific rules. For example, cars and parts must have a certain percentage of North American-made content to qualify for duty-free trade. The same applies to agricultural and manufactured goods that follow the agreement’s standards. If these conditions aren’t met, tariffs can still apply.
Canada responds to rising duties
Canadian Prime Minister Mark Carney said that although there’s an agreement in place, the new tariffs show a change in the relationship dynamic with the U.S.
“So while we’ll continue to work with the United States on the many mutually beneficial opportunities that we share in trade and investment, it is clear that we cannot count, or fully rely, on what has been our most valued trading relationship for our prosperity,” Carney told reporters Tuesday in Kelowna, British Columbia.
On Thursday, July 31, Trump raised tariffs on certain Canadian goods from 25% to 35%, citing a national emergency linked to the flow of fentanyl and other illicit drugs across the northern border. The executive order claims Canada has not done enough to curb trafficking and related criminal activity.
While the duties apply to a range of goods, some items, including those that meet USMCA requirements, remain exempt. The order also warns that any Canadian retaliation could trigger further increases.
US opens talks with Mexico
On the same day that President Trump announced new tariffs on Canadian goods, his administration also kicked off a 90-day negotiation period with Mexico. Mexican President Claudia Sheinbaum confirmed that both sides are working toward a longer-term deal.
“First, I believe that we have come to a good agreement and second, our strength is in the people, so it is not that just one person sits down to negotiate with another. We represent a great country, a great people and that is what we have always maintained above all. So that is to negotiate and work as equals, and that is what is demonstrated in the calls,” Sheinbaum said following the announcement of the talks.
For now, a 25% tariff remains on Mexican imports, a rate Trump has tied to fentanyl trafficking. In July, Trump had threatened to raise that to 30%, but Mexico has three months to avoid that hike. During the talks, U.S. tariffs on Mexican autos will stay at 25%, while copper, aluminum and steel face 50% duties. Some goods are still shielded from tariffs under the USMCA, which is set for review next year.
U.S. trade data shows a growing gap with Mexico, 2024’s trade deficit hit $171.5 billion, compared to $63.3 billion in 2016 before Trump took office. The sharp rise in the trade deficit highlights ongoing concerns about the effectiveness of current trade policies, as the U.S. continues to rely heavily on Mexican imports while struggling to close the export gap.
Lutnick: USMCA renegotiation coming
Speaking on “Face the Nation” with Margaret Brennan, Commerce Secretary Howard Lutnick said Trump fully intends to renegotiate the USMCA, arguing it’s necessary to protect American jobs and keep more manufacturing in the U.S. rather than in Mexico or Canada.
