WASHINGTON: The Trump administration is considering potential changes to North American trade rules that would raise tariff costs on US automobile imports and push manufacturers to boost domestic production, according to people familiar with the matter.
US officials have discussed requiring vehicle imports to have a minimum amount of US parts, said the people, who asked not to be identified discussing the private deliberations.
Another option under consideration would limit the ability of automakers to lower their tariff rates under the US-Mexico-Canada free trade agreement, effectively raising the costs to bring vehicles across the border, one of the people said.
The considerations are at an early stage and it isn’t immediately clear how that might work in practice.
Administration officials have floated the potential changes internally and with people close to the auto industry ahead of a planned review of the so-called USMCA trade agreement, the people said.
No formal proposals have been made yet to trade leaders in Canada or Mexico, said the people, who characterised the deliberations as preliminary.
An official from the Office of the US Trade Representative told Bloomberg News that the administration is working to reshore US manufacturing, including through the review of USMCA, but declined to discuss what proposals are under consideration.
“At the negotiation tables, there is no discussion of increasing auto tariffs or increasing rules of origin for autos,” Luis Rosendo Gutiérrez, Mexico’s deputy economy minister for trade, said on the sidelines of an event in Washington.
A spokesperson for Dominic LeBlanc, Canada’s minister responsible for US trade, declined to comment. White House and Commerce Department representatives did not respond to requests for comment.
The considerations reflect frustration in Washington that trade policies have yet to produce a substantial reshoring of automobile and component factories to the United States. President Donald Trump imposed a wave of tariffs last year to push companies to build more domestically, including a 25% tariff on imported vehicles and auto parts.
While automakers have pledged billions in new investment and announced plans to move some production to the United States from Canada, Mexico and Japan, a substantial uptick in auto investment has yet to materialise.
The United States remains heavily reliant on imports to satisfy domestic demand, particularly for vehicles starting at US$30,000 or less.
Autos are among the industries that US and Mexico officials are set to discuss when a delegation led by US Trade Representative Jamieson Greer travels to Mexico today.
Ahead of those talks, Commerce Secretary Howard Lutnick criticised USMCA as a “bad industrial policy,” saying it should be changed to benefit the United States.
“I think it needs to be reconsidered and re-imagined correctly,” Lutnick said at the Semafor World Economy summit in Washington.
Under current USMCA rules, 75% of a vehicle’s parts must come from the United States, Canada or Mexico. Additionally, 40% to 45% must be made by workers who make at least US$16 an hour, among other requirements.
Under those rules, which took effect in 2020, vehicles could cross borders in North America duty-free.
Trump’s tariffs on automobiles and parts upended that dynamic, upsetting many automakers that have used USMCA and its predecessor to turn the continent into a global hub of automotive production.
The United States is currently applying tariffs to the non-US content of otherwise USMCA-compliant vehicles from Canada and Mexico. The Trump administration has pledged to tariff USMCA-compliant auto parts in the same way, though has not yet done so, possibly due to the complexity and red tape of any such measure. — Bloomberg
