Trade War Remapping Automotive Manufacturing

The U.S. and Canada agreed to their portion of the NAFTA reboot this week. The new trade agreement has been renamed the U.S. Mexico Canada Agreement, or NAFTA 2. New USMCA rules require a higher level of local content for automotive manufacturers in order for finished vehicles to qualify for duty-free shipping between the three countries. It also includes requirements based on labor costs as well as being subject to caps on exports from Mexico and Canada to the United States. Updates to the rules of origin now mean that a proportion of a product has to come from within the three countries in order to be eligible for duty-free treatment. Besides the new requirements for rules of origin in that sector, there will be caps relating to the number of vehicles that can be sold in the U.S. duty-free. Within those duty-free totals, about 2.6 million vehicles from Canada and 2.6 million from Mexico, excluding light trucks, have the green light. Exports of completed vehicles from Canada and Mexico accounted for 1.71 million and 2.57 million vehicles in the 12 months to July 31. Any further growth in vehicle exports would be subject to duties at 2.5% and potentially an additional 25% at a later stage.