Trump Refuses to Renew USMCA: What Does That Mean for Automotive Trade in North America?
tags:- The Trump administration has declined to renew the U.S.-Mexico-Canada Agreement (USMCA), putting a 10-year countdown on the deal.
- The refusal places the deal into a period of annual reviews until it's either extended or expires in 2036; countries can leave any time with six months' notice.
- The U.S. wants major changes to the deal, including increases in Rules of Origin requirements, with the next round of discussions set for July 20 in Mexico City.
President Donald Trump's administration has declined to renew the U.S.-Mexico-Canada Agreement (USMCA), meeting expectations but raising tensions for the North American automotive sector. The U.S. government's decision not to extend the USMCA places the agreement into a 10-year countdown of annual reviews until all parties agree to extend the agreement to 2042 or until the deal expires in 2036. Any country can leave the deal at any time with six months' written notice.
A large part of the Trump administration's decision not to renew centers on its desire for major revisions to the Rules of Origin (ROO) requirements for cars. Today, the USMCA dictates that 75 percent of a car must be built using parts that originate from the U.S., Mexico, or Canada to receive preferential tariff treatment. According to a report by Automotive News, the federal government wants to raise that figure to 82 percent, while also adding a clause requiring that 50 percent of a vehicle's parts specifically come from America.
Under the current agreement, parts that comply with the USMCA are not subject to the Trump administration's 25 percent tariff. Vehicles that do comply are subject to a 27.5 percent tariff (the previous 2.5 percent tariff plus the 25 percent Trump tariff) on the percentage of the value of non-U.S. parts they contain.
Representatives for the American automakers have expressed mixed feelings about the USMCA as it currently stands. "North American economic integration enables enormous competitive benefits for the region," the American Automotive Policy Council, which represents Ford, General Motors, and Stellantis, said in a statement on Wednesday. But the group also warned against the disadvantages American automakers face for non-USMCA-compliant cars. "U.S. automakers currently face a disadvantage versus imports from countries whose exports face a flat 15 percent tariff and are not subject to comparable rules of origin. We urge a swift and durable resolution that ensures a level playing field and provides long-term certainty needed for capital-intensive automotive investments."
Leaders from foreign automakers have thrown their weight behind the USMCA's extension, with Autos Drive America—the trade group representing international automakers in the U.S.—releasing a joint statement of support. "The USMCA is a success story for the entire U.S. auto industry, with billions invested in U.S. production and thousands of manufacturing jobs created since the agreement entered into force," the group wrote in its statement. "We urge the leaders of the U.S., Canada, and Mexico to swiftly reach consensus on an extension of USMCA that preserves the existing trilateral partnership, returns to preferential treatment for qualifying goods, and continues the stability and predictability that has helped the industry thrive for the past six years."
Both Canada and Mexico said last month that they wanted to extend the deal, with only the United States serving as a holdout. The refusal from the Trump administration was expected, but comes five years after the president touted the deal as the "most important trade deal ever made by the U.S.A." The next round of discussions is set to take place on July 20 in Mexico City, though talks are likely to drag on for months.
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Jack Fitzgerald’s love for cars stems from his as yet unshakable addiction to Formula 1.
After a brief stint as a detailer for a local dealership group in college, he knew he needed a more permanent way to drive all the new cars he couldn’t afford and decided to pursue a career in auto writing. By hounding his college professors at the University of Wisconsin-Milwaukee, he was able to travel Wisconsin seeking out stories in the auto world before landing his dream job at Car and Driver. His new goal is to delay the inevitable demise of his 2010 Volkswagen Golf.