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August 12, 2026. Canadian officials are considering a proposal that would accept U.S. automotive tariffs in exchange for reducing levies on vehicles that comply with USMCA rules, according to The Globe and Mail on Wednesday. The proposal would preserve an exemption for the value of U.S. content in cars exported from Canada. According to reports, Canadian and U.S. negotiators have discussed this proposal. Canada's negotiating team has talked about the plan, although it is unclear whether they have formally presented it to their counterparts in the U.S. The proposal has also been analyzed with the Canadian industry. Prime Minister Mark Carney has pledged to reach an agreement that reduces U.S. President Donald Trump's tariffs on cars, steel, aluminum, and forest products. The outlines of an agreement for steel and aluminum have been clearer than those for the automotive sector. Both sides are seeking to reach an agreement before August 19, the date by which Trump has threatened to impose 50% tariffs on an additional $20 billion of Canadian exports.
The automotive sector is central to the bilateral trade relationship and carries significant political weight. The United States wants Canadian premiers to eliminate their bans on the sale of U.S. alcohol as part of the agreement, which would require the approval of Ontario Premier Doug Ford, whose province is home to the country's largest automotive industry. Under the plan, Trump's automotive tariff would be reduced from its current rate of 25% on all Canadian automotive exports that comply with the United States-Mexico-Canada Agreement (USMCA). The tariff was imposed under Section 232 of the Trade Expansion Act of 1962. All U.S. content in cars manufactured in Canada would continue to be excluded from the tariff calculation. If a car manufactured in Canada contains 50% U.S. content, the tariff would apply only to half of the vehicle's value. Canadian officials have also discussed a proposal to apply tariffs only to the content of a vehicle originating outside of North America, which would reduce levies to a minimal amount. According to the report, Canadian negotiators have consulted with industry leaders to determine acceptable concessions. The automotive sector has indicated it could handle a tariff of between 10% and 15% as long as the U.S. content of the vehicle is not subject to the levy.
Approximately 50% of a car manufactured in Canada originates in the United States, due to integrated supply chains between the two countries. Negotiators have also consulted with representatives of the agricultural, steel, and aluminum sectors. It remains unclear how receptive U.S. negotiators would be to the idea of reducing the automotive tariff.
Author: Vlad Schepkov
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