Canadian officials are considering accepting U.S. tariffs on auto exports in return for Washington reducing levies on vehicles that comply with the United States-Mexico-Canada Agreement (USMCA), as the two countries push to reach a broader trade deal, The Globe and Mail reported, citing three sources familiar with the negotiations.

Under the proposal, Canada would tolerate a lower level of U.S. auto tariffs without retaliating, while the value of American-made components in Canadian vehicles would continue to be exempt from the levy.

The discussions could provide the first outline of a compromise over autos, one of the most sensitive areas in negotiations between Ottawa and Washington. U.S. President Donald Trump currently imposes a 25% tariff on Canadian auto exports under Section 232 of the Trade Expansion Act.

Canadian officials have also discussed the possibility of applying tariffs only to vehicle content originating outside North America, which could substantially reduce the effective levy, according to the report.

Industry representatives consulted by Ottawa have indicated that Canadian automakers could withstand a tariff of around 10% to 15% if U.S. content remained exempt. Roughly half the content of a Canadian-made vehicle can originate in the United States because of deeply integrated cross-border supply chains.

Prime Minister Mark Carney is seeking reductions in Trump's tariffs on autos, steel, aluminum and forestry products as negotiators work toward an Aug. 19 deadline. Trump has threatened 50% tariffs on an additional $20 billion in Canadian exports if an agreement is not reached.

However, uncertainty remains over whether the two sides can resolve the complex auto provisions in time, with one Canadian official suggesting an interim agreement postponing further U.S. tariffs while negotiations continue may be more achievable.