The automotive tariff dispute between the United States and Canada has reached a new level as of last week, marking a turning point in the ongoing tariff developments in this sector. On March 26, 2025, the U.S. president issued Proclamation 10908 to impose an additional 25% tariff on imports of passenger vehicles, light trucks, and certain automobile parts into the United States. In response, Canada has decided to implement reciprocal tariff measures. This article summarizes the key points stakeholders need to understand regarding these new measures.
A. The U.S. Presidential Proclamation
1) What automobiles are affected?
The term “Automobiles” refers to sedans, sport utility vehicles, crossover utility vehicles, minivans, and cargo vans, and light trucks. A full list of targeted vehicles, as classified under Chapter 87 of the Harmonized Tariff Schedule of the United States (HTSUS), can be found in Annex 1 of the Proclamation (Section A.a.(b)).
2) What automobiles are exempted?
The US content of the Automobiles, as described above, that are eligible for special tariff treatment under the Canada-US-Mexico Agreement (CUSMA) is exempted from the additional 25% tariff. Importers of CUSMA-eligible Automobiles can provide the U.S. Secretary of Commerce with documentation proving the U.S. content in their vehicles. “U.S. content” refers to the value of the Automobile attributable to parts that are wholly obtained, produced entirely, or substantially transformed in the United States. If the Secretary of Commerce determines the automobile qualifies, the additional 25% tariff will only apply to the value of the non-U.S. content. The non-U.S. content of the Automobile will be calculated by subtracting the value of the U.S. content from the total value of the Automobile. This means the additional 25% tariff will only apply to the non-U.S. content of CUSMA-eligible Automobiles.
It is important for manufacturers to accurately declare the U.S. content, as overstating the U.S. content will result in the full 25% tariff being applied to the entire vehicle’s value, retroactively and prospectively.
Additionally, Automobiles manufactured more than 25 years before the date of entry into the U.S. are exempt from the additional 25% tariff.
3) When do the tariffs on automobiles take effect?
The 25% additional tariffs came into effect on April 3, 2025, for Automobiles.
4) What automobile parts are affected?
The term “Automobile Parts” refers to engines and engine parts, transmissions and powertrain parts, and electrical components. A full list of targeted parts, as classified under the HTSUS, can be found in Annex 1 of the Proclamation (Section B.a.(g)).
5) What automobile parts are exempted?
The 25% tariff will not immediately apply to Automobile Parts that qualify for preferential treatment under CUSMA. The Secretary of Commerce, in consultation with Customs and Border Protection, is tasked with creating a system that will allow the tariff to be applied only to the non-U.S. content of CUSMA-eligible Automobile Parts (similar to how it is applied to Automobiles). Once this process is established, the additional 25% tariff will be applied based on the proportion of non-U.S. content in these Automobile Parts.
This means that Automobile Parts eligible for CUSMA treatment will not face the additional 25% tariff immediately. However, the system to apply the tariff based on non-U.S. content will be set up in the future.
6) When do the tariffs on automobile parts take effect?
The new additional 25% tariffs on Automobile Parts will take effect by May 3, 2025, except for CUSMA-eligible Automobile Parts, which are temporarily exempted until the relevant process is set up. However, this temporary exemption for CUSMA-eligible Automobile Parts does not apply to automobile knock-down kits or parts compilations. These items will be treated as non-CUSMA-compliant Automobile Parts with regard to the effective date, i.e., by May 3, 2025.
B. The Canadian countermeasure
In response to the U.S. tariffs, Canada will impose a 25% counter-tariff on U.S.-made vehicles. On April 3, 2025, Canadian Prime Minister Mark Carney announced that Canada would apply 25% tariffs on all U.S. vehicles that do not comply with CUSMA, as well as on the non-Canadian content of CUSMA-compliant vehicles imported from the U.S.
Carney further stated that the Canadian government is developing a “framework” to help auto producers avoid these counter-tariffs, provided they continue to maintain production and investment in Canada.
