Revised USMCA Could Result in Higher Tariffs on Automakers

The revised USMCA trade agreement could increase tariff costs on automakers by nearly $3 billion over the next 10 years, according to CBO

Arslan Butt•Thursday, December 19, 2019•1 min read

Revised USMCA Could Result in Higher Tariffs on Automakers

According to estimates by the Congressional Budget Office (CBO), the revised USMCA trade agreement could increase tariff costs on automakers by nearly $3 billion over the next 10 years. This figure was included in the cost estimate of implementing the new USMCA agreement by the CBO.

Automakers requiring tariff exemption to supply to the US, Mexico and Canada should utilize around 75% of components sourced regionally. This figure has been hiked up since the previous trade agreement, NAFTA, in which the regional content requirement for tariff exemption stood at 62.5%.

The USMCA also specifies that automakers must source 40-45% of their content from regions where workers receive higher wages, upwards of $16 per hour, which would need these parts to be sourced either from the US or from Canada. Vehicles manufactured in Mexico or using components sourced from Mexico will have to pay tariffs for access to US and Canadian markets.

This updated criteria could see a potential decline in tariff-free imports of automobiles and auto parts from Mexico and Canada as automakers attempt to maintain their tariff exemptions. There could also be an increase in manufacturing of components within the US as a result of this new provision in the updated USMCA.

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ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.