Canada’s auto industry could soon get some relief from one of the biggest threats hanging over its factories. A developing trade agreement with the United States may significantly reduce the tariff applied to Canadian-built cars and trucks entering the country.
The proposed change would lower the headline U.S. auto tariff from 25 percent to 15 percent, according to Reuters, citing a source familiar with the negotiations. Canadian officials have reportedly pushed for an even lower 10 percent rate.
Nothing is final yet, however. Negotiations between the Trump administration and Canadian Prime Minister Mark Carney’s government are continuing as the two countries race toward another tariff deadline.
President Donald Trump has nevertheless signaled that an agreement is close, saying the two sides would “probably have a deal.” Carney similarly said Canada and the U.S. were moving toward an agreement.
Canadian Cars Could Face A 15 Percent Tariff
The biggest development for automakers is the proposed reduction in tariffs on Canadian-built vehicles from 25 percent to 15 percent. That’s still a substantial import tax, but it would ease pressure on an industry whose supply chains have been built around moving vehicles and components across the U.S.-Canada border.
The effective tariff could also wind up below 15 percent for some vehicles. Reuters reports that the headline rate would be applied before deductions for the value of U.S.-produced content contained in Canadian-built vehicles.
Two auto executives told Reuters that Canada has been seeking a 10 percent tariff instead. Whether negotiators can push the final number that low remains uncertain.
Trump offered a brief description of the negotiations when asked specifically about auto tariffs, saying Canada had been paying a high rate and that the administration was “reducing it a little bit.”
Steel And Aluminum Could Get Relief Too
Vehicles aren’t the only major Canadian exports potentially receiving better treatment. The proposed agreement would also cut the top-line U.S. tariffs on Canadian steel and aluminum from 50 percent to 25 percent.
The steel reduction reportedly comes with an important limitation. Industry sources told Reuters that the lower rate would apply only to imports within a quota, potentially around 4 million metric tons annually, with volumes above that threshold continuing to face the 50 percent tariff.
Lower metals tariffs could have additional implications for the auto industry, where steel and aluminum remain critical materials throughout vehicle and component production.
The negotiations follow Trump’s threat to impose another round of tariffs on Canadian imports. Those measures were initially expected to take effect Wednesday but were delayed until Saturday as talks progressed.
Canada’s Auto Industry Has A Lot At Stake
Canada and the United States have deeply interconnected automotive manufacturing networks, with parts often crossing the border during the production process. A sustained 25 percent vehicle tariff therefore presents a significant challenge for manufacturers operating Canadian assembly plants.
A reduction to 15 percent wouldn’t restore the tariff-free environment the industry previously enjoyed, but it would substantially lower the burden. Deductions for U.S.-sourced content could soften the impact further.
There is also a possibility that the auto issue won’t be completely settled in the immediate agreement and could instead become part of the broader review of the U.S.-Mexico-Canada trade framework.
For now, the proposed 15 percent figure remains just that: proposed. With both governments publicly indicating that progress has been made, Canada’s auto sector may soon find out whether some of the pressure on cross-border vehicle production is finally about to ease.