The United States International Trade Commission (USITC) has begun a new investigation into the automotive rules of origin within the United States-Mexico-Canada Agreement (USMCA), prompting uncertainty among automakers across North America. This review, the third in a series scheduled through 2031, centers on whether the current trade regulations are effective and relevant in a rapidly evolving global economy.
The Core of the Debate: Regional Content
The USMCA, which replaced NAFTA in 2020, mandates that 75% of a vehicle’s content must originate from North America to qualify for duty-free trade. Additionally, at least 40% of a passenger car’s core parts must be manufactured in either the US or Canada, with pickups requiring 45%. These stipulations were intended to incentivize domestic production, but their effectiveness is now under scrutiny. The USITC will assess the impact of these rules on key economic indicators, including GDP, jobs, wages, and competitiveness.
Why It Matters: Supply Chains and Tariffs
The complexity of modern global supply chains makes adhering to these regional content requirements challenging. Some economists suggest that automakers may find it cheaper to pay the 2.5% tariff on non-compliant vehicles rather than reconfigure their sourcing. This highlights a fundamental tension between protectionist trade policies and the realities of international manufacturing. The USITC’s findings will be crucial as the three countries prepare to decide whether to renew the USMCA later this year.
Automaker Responses: Clarity vs. Reciprocity
Major automakers, including GM, Ford, Toyota, and Tesla, have called for an extension of USMCA and clearer regulations. However, Stellantis has proposed a more aggressive stance: either apply similar origin rules to vehicles imported from outside North America or eliminate tariffs on compliant vehicles from Canada and Mexico. This suggests a growing desire for either stricter enforcement or a leveling of the playing field.
The USITC will hold a public hearing in October and is expected to deliver its findings by July 2027. The outcome of this investigation will have significant implications for the future of automotive trade in North America.
These reviews are critical not just for automakers, but for understanding how trade policy adapts to changing global economics. The goal of regional content rules is to strengthen North American manufacturing, but the unintended consequences – like increased costs or tariff avoidance – must be addressed.
