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WASHINGTON — Provisional agreement on a new North American trade pact was supposed to reduce economic uncertainty for the industry after months of acrimonious negotiations. But less than two weeks before the official signing of the U.S.-Mexico-Canada Agreement, auto interests are worried that U.S. tariffs on raw materials and vehicles will wipe out any potential benefits.
Business groups assumed after the Sept. 30 framework agreement that the U.S. would exempt Canada and Mexico from steel and aluminum tariffs, especially because many believed the White House was simply using them for negotiating leverage. With a deal in hand, President Donald Trump was also expected to agree not to impose tariffs on autos and parts from those nations.
But those assumptions aren’t panning out. And the industry’s lukewarm position on the new trade pact could turn chilly if the administration doesn’t change how it treats Mexico and Canada, industry officials say.
“Our vision is that USMCA is intended to define the trading relationships among the three countries. And we are being asked to do a lot under that agreement in terms of rules of origin and labor value content,” said a representative for an international automaker who asked not to be named because of the subject’s sensitivity. “But now to pile on steel tariffs, and maybe auto tariffs, it just seems to me what’s the point of the USMCA if they are going to keep moving the goal posts? And you got to keep in mind that USMCA already has in it obligations to use [70 percent] North American steel.”
Automakers and suppliers say they are paying 30 to 50 percent more for domestic steel because of the tariffs, threatening sales.
In testimony before the International Trade Commission last week, the Motor and Equipment Manufacturers Association, Alliance of Automobile Manufacturers and American Automotive Policy Council, which represents the Detroit 3, called on the administration to exempt Mexico and Canada from the 25 percent steel and aluminum tariffs, saying the issue must be resolved before the trade pact is signed at the G-20 summit in Argentina.
“I will tell you, if the steel tariffs remain, it is going to be very difficult for us,” the automaker lobbyist said.
Ann Wilson, vice president for government affairs for the Motor and Equipment Manufacturers Association, told Automotive News that if the White House tries to win ratification without removing the metal tariffs, the industry will be greatly concerned “and those concerns will be relayed to Congress.”
Canada is expected to show its displeasure by having the ceremonial signing carried out by a lower-level official. Opposition parties in Canada have criticized Prime Minister Justin Trudeau for agreeing to the trade pact without securing an end to the metal tariffs.
Meanwhile, industry officials worry that side letters in USMCA spelling out a tentative quota regime for vehicle imports and the value of auto parts if tariffs are imposed suggest that Trump tariffs on those products are a foregone conclusion.
Even if the tariff issues are resolved, the trade pact itself still leaves automakers with more questions than answers.
Industry groups testified that the rules of origin for autos are complicated and opaque, making it difficult to assess how changes from NAFTA will affect the industry.
Manufacturers face increased operational costs associated with supply chain adjustments and will have to invest in personnel and technology to track compliance with new rules of origin for vehicles and parts, as well as a minimum wage standard, officials said. The three-year transition period that kicks in once USMCA is approved by the national legislatures may not be long enough for some firms, Wilson said.
“The industry is going to have to work really hard between now and the end of the year to define certain processes for how to comply, so we don’t add to the administrative burden,” Wilson said. “You can have regulations that are fairly straightforward, or you can have regulations that are much more burdensome. And at this point, the industry can’t afford the burdensome route.”