Auto Industry: Section 232 Tariffs Undermine USMCA; Don't Want Major Changes to FTA

For USMCA-compliant finished vehicles, importers are allowed to document the value of "parts wholly obtained, produced entirely, or substantially transformed in the U.S.," and subtract that from the valuation.

Autos Drive America, which represents most foreign nameplate companies with U.S. assembly operations; the American Automotive Policy Council, which represents Detroit's Big Three automakers; and MEMA, the vehicle parts trade group, all participated in a Washington International Trade Association roundtable on April 16.

Autos Drive America CEO Jennifer Safavian said that the auto industry had to pay $35 billion in tariffs last year, between tariffs on autos, parts, steel, aluminum and copper.

The tariffs on Canadian and Mexican vehicles and metals, in particular, "really undermines the purpose of USMCA." She said the pact "was designed to ensure predictable, duty-free trade across North America."

Not only does it increase costs for manufacturers, it also resulted in Canada imposing retaliatory tariffs on U.S. vehicles, she noted, which has reduced the value of U.S. car and truck exports from $23 billion in 2024 to about $12 billion last year.

Panelist Cody Lusk, the head of a trade group that represents nearly 10,000 auto dealerships, said manufacturers have eaten a lot of the pain of the Section 232 tariffs, but said the tariffs "have been a real blow to the auto sector" and have resulted in less discounting offered by manufacturers.

All the panelists noted that sourcing duty-free parts and vehicles from Mexico and Canada helps the auto industry offer vehicles that are less expensive than if all the vehicles' content came from the U.S.

Lusk said while affordability has been a buzzword in politics recently, it's been an issue in new car sales for years. "If we’re not able to retail this to American consumers, none of this really works," he said.

A recent analysis from Cox Automotive said the share of new-car buyers with incomes of less than $100,000 was only 37%, while it was 50% in 2020. (Those households account for 57% of all U.S. households).

The share of new-car buyers with incomes of more than $200,000 was 29%; only 16% of U.S. households have incomes that high.

Lusk said any changes to USMCA that are made as a result of the review must "keep the American auto consumer top of mind to make sure they can get the vehicle that meets their needs at a good price."

When asked if the changes in the rules of origin from NAFTA to USMCA were good for the U.S. auto industry, American Automotive Policy Council CEO Matt Blunt gave an "emphatic yes." He said of more than $200 billion in automotive investment in North America from 2020 to 2025, 86% was in the U.S., and much of it was to meet the new rules of origin, which include a labor value content provision designed to limit Mexico's share of auto production.

He said auto manufacturing jobs grew by approximately 50,000 over the time period.

MEMA CEO Paul McCarthy noted that an International Trade Commission report found that domestic parts production grew by $37 billion due to USMCA, which said that vehicles couldn't count as originating unless a number of major systems were also originating, including engines. Under NAFTA, as long as the total regional value met the benchmark, imported parts were fine, though there was a tracing list to limit the use of roll-up to meet RVC.

He said his members were arguing: "Let's not mess with success. Their No. 1 priority for future success is continuation of USMCA."

He said they also don't want changes to the rules of origin. For commercial vehicles, the USMCA ROO isn't fully implemented until the middle of 2027, and even in light vehicles, "we’re still in process of adjusting to these rules."

Safavian made the same point, that the phase-in for light vehicles only ended in July 2025. She said her group would prefer no changes, but if there are changes, they should be minor.

Blunt agreed. "We understand that there might be some changes. We urge those to be minor and even minor changes require a significant transition period given the nature of our industry."

Blunt said there is a limit on how high RVC can go and still be achievable. According to the Office of the U.S. Trade Representative, about 8% of imported vehicles from Mexico and Canada did not claim the preference in 2023 (see 2407020032).

The proportion of parts claiming USMCA preference has grown since the imposition of 25% tariffs on parts that don't meet the FTA rules, but that has compliance costs, McCarthy noted, calling them crippling.

He said 90% of MEMA members are small or medium-size businesses, and "recently, the biggest growth sector has been compliance jobs."

McCarthy said growth in auto parts imports from Mexico does not mean the U.S. industry is fading. "A lot of the growth we’ve seen in Mexico is about replacing imports from Asia, often from non-market economies," he said.

Importing parts from Mexico, with its lower wages, helps the domestic auto industry stay competitive with Europe, Japan and Korea, Blunt said. Each region relies on imported parts from lower-income trading partners.

The moderator asked the panel if the revised USMCA should not grant benefits to the imports of cars or parts made by Chinese-owned firms in Mexico or Canada that otherwise would qualify. None wanted to give an opinion, but Safavian said, "That is going to be a big part of this conversation among these three countries. I’m not exactly sure where they’re going to land on that."

U.S. Trade Representative Jamieson Greer has suggested the U.S. will not be ready to renew USMCA for another 16 years by July.

McCarthy said the administration should be aware that the policy uncertainty is causing companies to hold off on building factories. He said one member company wants to bring production to the U.S., but it only works if they can sell those parts to Canada and Mexico duty-free, and can import commodity parts from Mexico duty-free. The decision is on hold, he said.

"It’s not just figuring out USMCA for 2026," he said. In the auto industry, it takes years to validate a new design, scale up production and reach volumes that are profitable. He said for the sector, "2030 is yesterday."

Moderator Arun Venkataraman asked Blunt what he thought of the UAW comment on the USMCA review, where it called for wage floors across the region, and managed trade in vehicles until U.S. production is large enough to fully meet U.S. demand.

Blunt said region-wide wage mandates would increase costs, which would both reduce competitiveness with cars from outside North America and reduce demand, "and ultimately, would reduce employment. The UAW comments were definitely an outlier," he said, in calling for an end to USMCA if it's not heavily rewritten. He said most commenters asked for some improvements but also said USMCA needs to continue.