By on March 15, 2021

Lobbyists are reportedly seeking to soften the United States-Mexico-Canada Agreement (USMCA) now that there are some new faces in the White House. Signed in 2018, revised in 2019, and effective since 2020, the USMCA sought to restore North America’s manufacturing base with new content requirements and place the United States in a more favorable position than it held under the North American Free Trade Agreement. But industry groups are now claiming that interpretations from government agencies are gumming up the works, and accusing the U.S. of having a different interpretation from what the other nations had originally agreed upon.

“[The USCMA interpretation makes] meeting the … content provisions that much more difficult for everyone to achieve,” stated David Adams, president of Global Automakers of Canada. 

Adams is likely upset that North American manufacturers have to source so much of the materials of the vehicles they produce from local suppliers, framing the entire agreement as a decidedly U.S. approach. The Trump administration specifically enacted the USMCA to give the United States more favorable positioning than it had under the North American Free Trade Agreement (NAFTA). Signed in December of 1993, NAFTA became a sore spot for many Americans who accused it of encouraging companies to shift production out of the United States.

Actually deciding whether or not NAFTA was effective remains difficult and is often muddled by politics — everyone wants to support every policy launched by their preferred party. While we’d like to offer a definitive answer to how bad/good NAFTA was, there’s a lot of conflicting information out there. The Economic Policy Institute released a study in 2013 alleging that the deal had obliterated nearly 700,000 high-paying manufacturing jobs from states like Michigan and California in its first decade. But some experts have claimed those would have been offset by increased automation or the changing employment landscape regardless while giving smaller businesses better access to the Canadian and Mexican markets (and vice versa).

NAFTA was contentious even when it was new, with Ross Perot spending a large portion of his time on the campaign trail criticizing it before ultimately losing to Bill Clinton — who signed it into law. Bernie Sanders also bashed it during the 2016 presidential election, along with CAFTA, the Trans-Pacific Partnership, and normalized trade relations with China. He argued that the U.S. had outsourced too much of its manufacturing already and desperately needed to prioritize job retention and helping the middle and working classes. At roughly the same time, Donald Trump was calling NAFTA ” the single worst trade deal ever approved in [the United States].”

Obviously, this set the stage for Trump to push through the USMCA, which brings us back to the lobbyists. The new agreement’s rules of origin requirements stipulate that a certain portion of an automobile’s value must come from inside the governed region. Under NAFTA, that portion was 62.5 percent. But USMCA bumped the figure up to 75 percent — 10 percent less than Trump originally wanted — in a bid to secure localized manufacturing.

Content rules don’t come into full effect in 2023. But industry groups from all member nations are suggesting they don’t want to have to bother tweaking their supply lines to adhere to it. Lobbyists are also alleging confusion from Canada and Mexico on how customs are supposed to assess how these content requirements are quantified, according to Automotive News.

Adams claimed it’s far too stringent and expensive for the industry to handle: “This interpretation was entirely unexpected, and if it sticks, it will take many manufacturers time to make adjustments and potentially rejigger supply chains to avoid the tariff. Either way, there are inefficiencies, which [equal] costs,” he said.

From AN:

Matt Blunt, president of the American Automotive Policy Council, said it was “extremely important” that the three countries “work it out as quickly as possible.” Blunt’s group represents General Motors, Ford Motor Co. and Stellantis.

“We think it’s important for Canada and Mexico and the United States to resolve this and any issue related to the USMCA quickly, but certainly one as significant as this one,” he said.

“It should really be treated as a diplomatic priority, in our view, to ensure that the USMCA is properly implemented.”

Unfortunately, any changes made to appease the industry or the other two member nations by the United States ultimately weakens its own position. It would also be an incredibly bad look for Joe Biden to undo a trade agreement that took years to negotiate and hadn’t had adequate time to get off the ground. He’s used numerous executive orders to undo Trump-era policies already and would undoubtedly take flak for neutering the USMCA. But Adams said he hoped Katherine Tai, Biden’s nominee for U.S. trade representative, might be willing to take action instead. Automotive News cited an anonymous source claiming that would likely be the plan.

“It would be very hard for Biden to say, ‘No, we side with the industry and Canada and Mexico, and we want to let you roll up’ because that would mean less content [sourced from] North America,” the insider said, adding that they expected it to be “quietly resolved” by Tai.

[Update 3/15/2021: Mr. Adams reached out to us to express his displeasure regarding how we characterized him and the situation. He has asked that we issue a correction or retraction and criticized us for inserting our “own narrative on a story that is not there.” We’ve informed him that we’re inclined to let lobbyists do their own work and are awaiting his response.]

[Image: Orhan Cam/Shutterstock]

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36 Comments on “Auto Lobbyists Attempt to Soften USMCA, Look to White House [UPDATED]...”


  • avatar
    ToolGuy

    Who is to say where Mexico ends and the U.S. begins – so judgmental.

    What is the modern trade equivalent of “soft-sided” facilities?
    https://www.cbsnews.com/news/migrant-children-border-patrol-custody-past-legal-limit/

  • avatar
    schmitt trigger

    Back when NAFTA was still being argued, the late comedian Phil Hartman made a skit on Saturday Night Live.

    If I recall correctly, the skit was all business and no laughs.
    Does anyone else remember this episode?

  • avatar
    slavuta

    “industry groups are now claiming that interpretations from government agencies are gumming up the works, and accusing the U.S. of having a different interpretation from what the other nations had originally agreed upon.”

    Industry groups missed the news. All cheap labor is now in the US.

  • avatar
    28-Cars-Later

    “The new agreement’s rules of origin requirements stipulate that a certain portion of an automobile’s value must come from inside the governed region. Under NAFTA, that portion was 62.5 percent. But USMCA bumped the figure up to 75 percent — 10 percent less than Trump originally wanted — in a bid to secure localized manufacturing.”

    So in theory, increases US localized manufacturing.

    “Content rules don’t come into full effect in 2023. But industry groups from all member nations are suggesting they don’t want to have to bother tweaking their supply lines to adhere to it. Lobbyists are also alleging confusion from Canada and Mexico on how customs are supposed to assess how these content requirements are quantified, according to Automotive News.”

    Translation: We [as the industry] don’t want to do this, not only does it cost us more per unit we also have to alter our logistics to comply. This also potently costs us money if we have spare capacity in a Mexican (or in theory Canadian) facility but cannot produce the content there because of these rules (after all the point of NAFTA was to move work away from UAW to a bordering country where we could pay much less and be held to much laxer environmental standards etc.).

    “But Adams said he hoped Katherine Tai, Biden’s nominee for U.S. trade representative, might be willing to take action instead. Automotive News cited an anonymous source claiming that would likely be the plan.”

    Watch the Biden Administration very closely here. The industry wants orders to come from on high to Katherine Tai to quietly soften or invalidate these rules of the treaty, which were designed to add American sourced production. If the Biden Admin acquiesces this, State Media will provide near zero to zero coverage of the event, and it is proof to anyone reading where the Democratic Party stands on American jobs. Not conjecture, not rationalizing, not “oh well this one is X”, not taking any bullsh!t because there is no room for interpretation here. This is black and white, either you enforce the content rules of the negotiated *and signed* treaty or you quietly bury how you are royally screwing Americans and violating a treaty. What’s it going to be folks? Tick tock.

    • 0 avatar
      sgeffe

      We already lost 10,000 jobs (plus all the spin-off stuff) with the stroke of a pen! Why would they change their “America Last” policies?

    • 0 avatar
      golden2husky

      …If the Biden Admin acquiesces this, State Media will provide near zero to zero coverage of the event…

      This is one of the very few things Trump did that I approve of, but if Biden does undo it, State TV (Fox) will certainly run it over and over. CNN and MSNBC will cover it, but it will drop off the radar the next day for the next story.

      NAFTA was a disaster…Perot said that it would create a “giant sucking sound”….and he was right

      • 0 avatar
        28-Cars-Later

        If the administration does things dirty and wants it buried, it will get buried. Murdoch sold Fox, it is now a permanent member of State Media and anything it broadcasts is controlled opposition to the other media arms (likely this was always the case even previously but certainly now).

        Biggest story of the year is how the new administration has numerous times shut them out for questions because they are covering for the “president”‘s obvious age/mental issues and poor health. Pravda as a whole says nearly nothing about this, including Fox – but they accosted Trump daily and created completely false narratives based on his statements and misstatements. This is how you know its not necessarily fake, but all arranged and controlled – and nearly nothing it says can be fully believed. This is why I expect the order to come down to quietly violate the treaty, there is no repercussion for their actions – but I hope they surprise us and follow the law.

      • 0 avatar
        jkross22

        The corporate new$ media only covers things where it makes money or its owners have liability concerns.

        Journalism is dead at all of the main outlets. The old grey lady is just finishing the embalming process.

        Fredo and his merry band of clowns can’t find the big q-tip.

        Fox…. lol!

        You need to dig for journalism instead of it being served up. Such is life in 2021.

      • 0 avatar
        ect

        NAFTA was not a disaster. The broad consensus of independent studies has been that it led to a permanent increase in US GDP of around 1%.

        Moreover, BEA data tells us that US manufacturing output, in constant dollars, has doubled since NAFTA was signed. Not declined. Doubled.

        BLS data does tell us that direct manufacturing employment, during the same period, has declined by about 1/3. This is certainly significant, but the “culprit” here is automation. Not NAFTA or other trade deals.

        • 0 avatar
          Lou_BC

          @ect – people blame trade deals and “offshoring” but most manufacturering jobs have been lost to automation.

          I’ve seen it in my town. Sawmills, pulpmills,and logging employ way less people now than in my youth.

    • 0 avatar
      el scotto

      @ 28-cars-later Sir, I think the law of unintended consequences will have deep and strict rulings in this situation. Poorly regarded American vehicles will end up costing more and be even less competitive. However, a little bit of research will show the domestic content of American-built vehicles. I was pleasantly surprised reading Motorbiscuit’s top 30 cars with at lease 75% American content. Their list basically contains something for everyone. It will be interesting to see if the transplants can compete with, or even beat Ford/GM. It I was a betting man, I’d bet TMMC and Honda planned for this, GM really wants more Chinese parts, and Billy Ford is asking “what?”.

      • 0 avatar
        28-Cars-Later

        That’s a good point on unintended consequences, although less Chinesium by volume is probably a good thing for all involved.

        • 0 avatar
          slavuta

          I am a traditionalist. 100% Japanese content is fine.
          I was horrified when I saw on brake caliper brackets “Made in China” in my 95% Japanese content Mazda6. I thought, China would make an upholstery or plastic under-body shields. Now I am afraid to drive this thing…. just kidding

  • avatar
    aja8888

    Looking around where I live in Texas, we already have the cheap, low paying jobs NAFTA promised us. Phil was correct on SNL.

  • avatar
    dal20402

    Conservatives who criticize NAFTA need to reckon with the fact that it is why we’ve had net negative illegal immigration from Mexico for the vast majority of the past 20 years. (Plenty of liberals also criticize NAFTA but they don’t usually get so worked up about in-migration.)

    I don’t know enough about the USMCA changes to know whether I support what the Biden administration is doing here, but if you tilt the playing field too far back in the direction of the US you are going to restore the incentive for people from Mexico to try to migrate to the US in quantity, like they still do from Central America.

  • avatar

    Just roll back to NAFTA. What is the problem? We have to celebrate diversity.

  • avatar
    Varezhka

    So how strict will these rules become before it’s no longer worth it to build cars in the NAFTA/USMCA regions? Make automakers jump too many hoops, and it may become cheaper to just pay that 2% tariff and import cars from outside North America.

    I remember the steel/aluminum requirements were a big sticking point, where the US made steel was found to be too low a quality and too expensive for automotive usage. Is that still part of the NAFTA 2.0?

    • 0 avatar
      28-Cars-Later

      “where the US made steel was found to be too low a quality and too expensive for automotive usage”

      US steel was found to be too low of a quality for autos? What?

  • avatar
    28-Cars-Later

    Rereading the article I realized the high and mighty president of the Global Automakers of Canada was quoted using the word: “rejigger”. Ironically enough he implies his group members would exercise creative ethics in further calibrating their supply chains, as defined by Dictionary.com:

    “to change or rearrange in a new or different way, especially by the use of techniques not always considered ethical.”

    https://www.dictionary.com/browse/rejigger

    How did you get that job again, Mr. Adams?

  • avatar
    DenverMike

    The Tacoma plays by USMCA rules but has 0.0% US content. So what’s it taxed at?

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