New NAFTA rules to cost automakers US$3B

WASHINGTON • U. S. President Donald Trump’s rewrite of North American trade rules will cost automakers nearly US$ 3 billion more in tariffs over the next decade for cars and parts that will not meet higher regional content requirements in that time period, the Congressional Budget Office ( CBO) estimates.

The projection was contained in the non- partisan budget referee agency’s cost estimate of implementing legislation for the new U. S.- Mexico- Canada Agreement, which will be considered by the U. S. House of Representatives on Thursday.

USMCA, the replacement for the 26- year- old North American Free Trade Agreement ( NAFTA), is expected to pass the House with broad support from Republicans and Democrats.

For autos to receive tariff- free access between the three countries, USMCA imposes a 75- per- cent regional content requirement, up from 62.5 per cent in NAFTA, along with new mandates to use North American steel and aluminum.

In addition, 40 per cent to 45 per cent of vehicle content must come from highwage areas paying more than US$16 an hour, namely the U. S. and Canada. Some vehicles produced in Mexico mainly with components from Mexico and outside the region may not qualify for U.S. tariff-free access.

CBO said its estimate assumes that some vehicles and parts would not be eligible for tariff-free access.

“Because of that change in eligibility, CBO projects that duty-free imports of vehicles and parts into the United States from the USMCA partner countries would decline,” the agency said.

While it said a portion of those vehicles and parts would be replaced by U. S. production, some imports of non- USMCA- compliant vehicles and parts would continue, receiving less favourable treatment.

The US$ 2.97- billion increase in total customs revenues through fiscal 2029 starts at an increase of US$10 million in 2020 and rises to US$450 million by 2029, CBO said. The figure includes a partial offset from slightly lower projected tariff collections on agricultural products. CBO said some agricultural product imports that are now subject to duties would be replaced by duty-free Canadian products as a result of USMCA,

Overall, the USMCA bill would cut the federal budget deficit by US$ 3.04 billion through 2029, including a reduction in some federal payments to support U. S. dairy producers because of increased access to the Canadian dairy market.

In April, the U. S. International Trade Commission ( ITC) found that USMCA would modestly boost the U. S. economy, especially auto parts production over current conditions, but may curb vehicle assembly and limit consumer choice in cars.