Canadian and U.S. officials have been meeting daily over the past week to try to avert the latest U.S. tariffs and resolve several longstanding trade irritants between the North American neighbors. Issues include Canada's retaliatory duties on some U.S.-built autos and steel, moves by several Canadian provinces to pull American liquor from store shelves and U.S. complaints about Canada's allocation of dairy import quotas.
The negotiations are separate from broader talks about renewing the trilateral U.S.-Mexico-Canada Agreement on trade. The U.S. is currently only negotiating with Mexico.
Content deductions remain a key sticking point
A sticking point remains over a U.S. demand that only the value of U.S.-specific content could be deducted from the autos tariffs, in line with the current U.S. practice, the sources said. Canadian negotiators are pushing for all North American content to be deducted, including parts from Canada and Mexico, the sources added.
That kind of broader regional value content deduction could push the effective U.S. tariff rate on North American-built vehicles down to single digits, auto industry officials said. That would be far below the 15% rate currently paid on U.S. imports of vehicles from Japan, South Korea and the European Union that are the North American auto industry's key competitors, and 10% on most British vehicles.
Industry sees any tariff cut as an improvement
Some auto industry officials told Reuters that either option to reduce U.S. vehicle import tariffs to 15% would be an improvement over the current 25% tariff, with deductions for U.S.-specific content or for regional content. Japan, the EU and South Korea currently have a significant cost advantage to export cars to the U.S., with a 15% tariff rate and no regional content requirements that would restrict their use of cheaper Chinese parts.
U.S. and Canada discuss possible reduction in auto tariffs
U.S. and Canadian trade negotiators were haggling over a potential reduction in President Donald Trump's tariffs on Canadian vehicles to 15% after some value content deductions, three sources familiar with the talks said on Monday.
The countries face a Wednesday deadline for steep new U.S. duties on $20 billion worth of other Canadian goods.
If a deal can be reached, it would mark a significant reduction from Trump's current 25% "Section 232" national security tariff on autos imports that has threatened assembly line shutdowns in Canada.
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