The United States and Canada reached a landmark agreement on trade that overhauls NAFTA and brings it into the 21st. century.
Earlier yesterday the Office of the United States Trade Representative published its final draft of the United States-Mexico Canada Agreement (Oct. 1, 2018) and in its 34 separate parts, nine annexes, and 12 side letters were line items that directly affect auto production in North America in the years to come. Most notable in this agreement was a free trade of cars and parts between the United States and Canada that’s technically tariff-free, raises the wages of the Mexican worker far more than they ever imagined, and opened up dialogue for steel tariffs which wasn’t on the table at this moment and is a separate discussion altogether.
Before anything car related is discussed the biggest news you’ll probably want to know is the name change. Don’t even think of saying it’s NAFTA 2.0 because people who have a cursory understanding of this entire deal (me included) will correct you and tell you that it’s phonetically now UsMaCa or USMCA, the United States- Mexico, Canada Agreement.
The big news for cars is for more car parts and suppliers to supply said parts to the United States, Canada, and Mexico manufacturers. Under this deal to qualify for the incentive of zero tariffs, a car or truck must be 75 percent manufactured in N. America up from 62.5 percent. That means almost all large car parts such as engines, chassis, interior pieces, and body panels will probably be more made in N.America. In addition, this also incentives manufacturers importing parts from overseas to start sourcing parts closer to final assembly, here.
Whether Mexican labor likes it or not, there’s a new provision that in two years, by 2020, 30 percent of work done on a vehicle is done by workers earning $16/hour or more. That moves up to 40 percent in 2023. This will most likely result in car production shifting away from Mexico to maintain car prices at their present levels. If not, expect to see gradual increases in small car prices.
As per US News, this includes cars like the Audi Q5, Chevrolet Cruze, Sonic, Dodge Journey, Ford Fiesta, Fusion, Honda Fit, HR-V, CR-V, Kia Forte, and, Nissan Versa.
And as mentioned, there’s still a 25 percent tax on Canadian steel but those negotiations are “on a completely separate track.” I expect to see talks resume on steel tariffs when the campaign season is over for mid-term elections as Trump brings up how “American steelworkers are back on the job” often.
Cars might get more expensive to produce in N. America thanks to better Mexican labor wages but relations between all three countries stays intact as far as trade goes.
