In speeches in Michigan over the past few weeks, both presidential candidates made big promises to autoworkers about U.S. trade policy. Their proposals would do more harm than good.
vice president kamala harris criticized the U.S.-Mexico-Canada agreement (USMCA) decried what ails the industry, arguing that “President Trump's trade deals made it all too easy” to outsource American jobs.
This is a thinly veiled sweep of the agreement's rules of origin, Harris said.you might want to reconsiderWhen USMCA is updated in July 2026. This is a big mistake.
former president donald trump said City Hall: “If I don't win, the auto industry will disappear within two to three years.'' swore To use more tariffs to right the ship. However, additional tariffs would raise production costs and discourage companies from complying with USMCA's rules of origin. What Trump originally wanted more troublesome As for the rules of origin, there is little doubt that he is considering rewriting them in 2026.
To be eligible for USMCA's zero-tariff treatment, passenger cars and light trucks manufactured in Canada and Mexico must: Regional value content 75 percent (70 percent for heavy trucks). This is up from 62.5 percent under the USMCA's predecessor, the North American Free Trade Agreement. 85% of Trump suggested.
USMCA tooneedBetween 40 and 45 percent of the inputs will be made by high-wage workers, and 70 percent of the steel and aluminum used will come from North America.
These rules of origin are believed to help encourage investment in U.S. manufacturing. It also prevents transshipments from non-USMA countries.
House of Commons Select Committee on China warnedFor example, Chinese companies are “taking advantage of preferential access to the U.S. market through free trade agreements to circumvent any agreements.” [China]-Specific tariffs. ” But making these rules more stringent could be counterproductive on both counts.
United States International Trade Commission Found Until 2022, he said, there was “little indication” that the USMCA's rules of origin would result in changes to production, trade, jobs, investment or competitiveness. In terms of GDP and total employment, the impact was estimated to be “less than 0.01 percent.” Although the rules of origin will not be fully enforced until 2027, the U.S. International Trade Commission cited several reasons to suspect the situation could worsen further.
Most tellingly, there is evidence that auto companies and suppliers are forgoing USMCA incentives and choosing to export to the United States under World Trade Organization rules. USMCA's zero tariffs are not worth the cost of re-adjusting supply chains to meet rules of origin.
The U.S. most-favored-nation auto tariff is 2.5%; concern It has long been said that the USMCA's rules of origin only result in Canadian and Mexican companies exporting to the United States at WTO tariff rates. That's exactly what's happening.
For example, the U.S. International Trade Commission found that: Imported from Canada and Medico Since USMCA replaced NAFTA, U.S. most-favored-nation tax payments have “significantly increased.” Office of the United States Trade Representative This same trend was observed“the evidence suggests that suppliers are not seeking to claim USMCA preference for increasing their share of the auto parts trade.''
Tariffs are adding to the problem. The U.S. International Trade Commission says tariffs on China and tariffs on steel and aluminum are increasing production costs, making it less attractive for companies to meet these rules of origin to take advantage of USMCA incentives. pointed out.
The situation gets even worse. America, Canada, Mexico disagree For example, on how to audit the local value content of “core parts” such as engines and transmissions. Mexico and Canada challenge U.S. methodology and in 2023 USMCA panel ruled To their advantage. America is saying won't obey Because this ruling will result in a 10 to 20 percent increase in non-North American content.
However, the United States' non-compliance casts a dark shadow. As the Office of the U.S. Trade Representative acknowledged in this year's agreement, biennial report The Automotive Policy Council, the Canadian Automobile Association, and global automakers are calling for negotiations to reduce this uncertainty regarding auto trade under the USMCA.
United Auto Workers UnionGood feelingIt is adopting the U.S. methodology and hopes to persuade companies to increase MFN tariffs to meet USMCA rules of origin. The latter effort would require the United States to compensate affected countries, meaning any proposals along these lines would be pure fantasy.
More onerous rules of origin could undermine Harris' push for electric vehicles. Much fewer and different core parts. Without engines and transmissions, domestic producers may have difficulty meeting the 75 percent local value content.
Even if batteries can be procured in North America, it may not be possible to make up for the battery shortage. USMCA's current rules of origin, let alone stricter rules of origin, do not help re-intensify electric vehicle production. On the contrary, it could trigger a “reversal'' that would push American companies overseas.
Michigan autoworkers deserve better than false promises. More onerous rules of origin, accompanied by new tariffs, would disrupt entire North American supply chains and cost U.S. jobs.
Mark L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at Georgetown University's Walsh School of Foreign Service.
