The Trump administration, always a fan of keeping folks on their toes, has issued a sweeping demand to Mexico to raise the level of regional content in North American-built cars and trucks to 82% in order for them to qualify for preferential trade deal access. On top of that, half of that value has to be produced in the United States, according to four people familiar with the U.S.’s negotiations.
The proposed new thresholds were revealed to automakers during two days of bilateral talks to revise the U.S.-Mexico-Canada Agreement on trade last week. Because we live in a world that makes a lot of sense, Canada was excluded from the Mexico City-based negotiations, and there was no provision for counting any parts contained from Canada. Ya know, I’m not an expert, but I’m not quite sure just how feasible an ask like that is. From Reuters:
The shift, if accepted, would be a major break from the current USMCA, which requires 75% regional content to qualify for preferential tariff treatment.
USMCA also now requires that 40% of the “core parts” value of North American passenger vehicles be produced in high-wage jurisdictions, effectively the U.S. or Canada. That threshold, covering engines, transmissions, major body parts and EV batteries, is 45% for pickup trucks.
The U.S. demand and lack of accommodation for Canada are consistent with Trump administration officials’ frequent criticism of Canada’s exports of vehicles and auto parts to the U.S. and requests to move that production to the U.S.
Auto industry officials said that there was a high likelihood that U.S. Trade Representative Jamieson Greer would seek to negotiate the new rules of origin with Mexico and then present them to Canada as a take-it-or-leave-it proposition. Greer has been evasive about whether USMCA would continue as a trilateral trade pact or be broken into separate bilateral agreements.
USMCA was first launched back in 2020 to replace the 1994 North American Free Trade Agreement. It maintained a duty-free trade zone that served as the backbone of nearly $1.6 trillion in annual trade between the three countries. Unfortunately for everyone involved, President Trump woke up bored one day and decided to uproot the entire system — imposing a 25% tariff on Canadian and Mexican-made vehicles and components, as well as a 50% duty on steel, aluminum and copper from the countries.
Now, there’s a new ask.
Reuters first reported on Thursday that U.S. negotiators were pursuing a U.S.-specific automotive content requirement. U.S. trade officials briefed industry lobbyists on the proposal for 82% regional content, but it was not immediately clear how that figure, or the 50% U.S. value requirement, would be calculated.
USTR also has proposed raising regional value content for heavy trucks to 75% from 70% in the current USMCA, a source familiar with the U.S. proposals said. The source added that the U.S. also wants to incorporate its stricter calculation method for the local content of high-value components after a dispute panel announced in January 2023 that Mexico and Canada won in a ruling that effectively allows more non-North American parts in those components. The U.S. trade agency said in a statement that the Mexico City negotiating round also covered steel and aluminum trade and economic security provisions, which are aimed at keeping China and other countries from taking advantage of USMCA.
“The United States concluded discussions with the goals of reducing the trade deficit with Mexico and strengthening American supply chains,” USTR said, adding that both countries will also seek to enhance regulatory compatibility on sectors including medical devices, pharmaceuticals and cosmetic products.
A Mexican official who was familiar with the negotiations said there were “no surprises” and no one expects the U.S. to pull out of this latest accord. Talks are expected to continue later this month in Washington, D.C., focusing on agriculture and “a level playing field.” There’s a third round on the books for the end of July as well, but so far, nothing is set to get Canada involved.
