Big chunk of North American trade remains exposed to tariffs

Subscribe to enjoy similar stories. President Trump on Thursday suspended for one month the 25% tariffs he placed on Mexican and Canadian products earlier this week. But there’s a catch: The deal only applies to goods that had been traded duty-free under a 2020 North American trade agreement.

That’s less straightforward than it might seem, as the U.S.-Mexico-Canada Trade Agreement sets forth an intricate and complex set of rules governing trade among the three countries. Thursday’s turnabout has trade experts and lawyers rushing to determine exactly what goods will be subject to higher tariffs, let alone businesses that have skin in the game. Generally speaking, under the USMCA, which took effect during Trump’s first term, products enter the U.S.

duty-free if businesses can show they comply with certain rules regarding the origins of those products’ components. For example, a passenger vehicle only complies with USMCA if the majority of the components—including steel and aluminum—originate in North America. In addition, 40%-45% of the vehicle’s value must come from factories where workers earn at least $16 an hour.

Because USMCA rules are so complicated, businesses have sometimes chosen to pay a tariff on a given product instead of expending time and money to figure out whether it is USMCA-compliant, according to trade experts. The analytics firm Trade Partnership Worldwide estimated that in 2024, 50% of Mexican exports and 45% of Canadian exports entered the U.S. duty-free and in compliance with the USMCA.