USMCA Expert Predicts Lutnick Will Pick and Choose Who Receives Partial Reduction in Auto Tax

"There’s no guarantee this goes til May 3," he said on March 27. After all, he pointed out, CBP was given extra time to come up with a process for applying 25% tariffs to the aluminum content in derivatives outside the core aluminum chapters, and instead of taking it, it announced that those tariffs would start the same day as all the new Section 232 aluminum tariffs.

"CBP could come back tomorrow and say they’re ready to go," he said.

Ujczo said he was not speaking for his law firm, Thompson Hine, in his presentation. Ujczo, who is based in Columbus, Ohio, is close to Detroit's automakers and also has contacts within the Trump administration.

He noted an "interesting quirk in the language" in the proclamation about how U.S. parts would be identified -- they can qualify for substantial transformation, and there's no language that they also have to qualify under USMCA's regional value content or other rules of origin.

"Do you, as the vehicle producer and you as a supplier, have to do the USMCA rules to get in the door and then do you have to do the substantial transformation test? They usually lead to the same place, but sometimes they don’t," he said.

He said it's rare, but there are times a good qualifies for USMCA but is marked as a product of China, and owes Section 301 duties.

Not all auto parts will be covered by the action, and while there has been no annex issued yet, it's likely that a selection of goods will be drawn from the report that made the argument that U.S. national security is endangered because, with a decline in automotive manufacturing in the U.S., there's less money for R&D.

"Today, the defense sector is heavily interconnected and reliant on the automotive industry for R&D to meet current and future military requirements such as vehicle electrification, autonomous driving, hydrogen fuel cell products, advanced semiconductor utilization, radar, laser and sonar ranging, Global Positioning System ('GPS') navigation, anti-lock brakes, reduction in vehicle weight ('lightweighting'), and fuel efficiency efforts," the report said.

Because of this angle, Ujczo said, the list of parts in the Section 232 report doesn't include only the "supercore" and "core" parts that were the highest concern in USMCA, because they are the highest value. Rather, the electrical components in the report cover 65 tariff codes, and include a windshield wiper switch, the satellite radio, GPS, the clock, and lead-acid batteries.

For vehicles, USMCA-qualifying cars, and manufacturers of vans and light trucks from Mexico and Canada will be allowed to submit documentation about how much of those vehicles' value is in U.S.-built parts, and, if Commerce Secretary Howard Lutnick approves, those vehicles will only be tariffed on the foreign content.

However, the language in the proclamation says Lutnick "may approve" that partial exemption to the tariff.

A Canadian newspaper reported that Ontario's premier had a call with Lutnick on March 26, on which Lutnick said he understood that Canada and the U.S. have integrated auto supply chains, and that there would be further refinement on the reduction of the value of the vehicle subject to the tariff that would give Canadian automakers a significant advantage compared with other countries.

Ujczo said, in response to follow-up questions after the webinar, "I do not expect favoritism based on company. I anticipate preferential treatment based on U.S. content and planned future U.S. investments."

During the webinar, he noted that Ford's Chair Bill Ford and GM's CEO have meetings scheduled at the White House this week -- and he said it's no accident that the proclamation came out ahead of those appointments.

"There have been a lot of discussions with the administration about moving production" to the U.S., he said. He said that the administration presents charts to automakers about where they produce cars and trucks around the world, and the administration tells them how much they want to see moved to the U.S.

"The automakers said we need some time to figure that out," Ujczo said. "The president yesterday said: 'You’re out of time.'"

He noted that the president told reporters March 26 that the 25% auto tariffs would be permanent.

"We’ll see," Ujczo said. He believes Trump will cut deals -- perhaps imposing quotas? "It’s not going to be that there’s no tariffs, it’s going to be managed trade," he said.

The report proposed quotas on Korean exports, rather than tariffs, but also proposed that USMCA-qualifying vehicles be excluded from a 25% tariff on cars.

There is another way to exclude U.S. content from the value of imported goods, using Harmonized Tariff Schedule subheading 9802.00.80, but that's a narrower exception, only applying to components within a fabricated item. So, for instance, a German car with a U.S. engine couldn't deduct the value of the engine when reporting valuation for the duty.

The process described in the proclamation "makes it easier because you can certify the model and not do the same analysis on an entry-by-entry basis. Also, it likely expands the articles subject to Chapter 98, not just fabrication," Ujczo said.

The language is inconsistent in the proclamation on whether auto parts that do not claim USMCA preference also have a delay in being subject to the 25% auto tariffs. Ujczo said the Federal Register notice may offer more clarity.

Ujczo highlighted language on enforcement in the proclamation, which says if CBP "determines that the declared value of non-U.S. content of an automobile ... is inaccurate due to an overstatement of U.S. content, the 25 percent tariff shall apply to the full value of the automobile, regardless of the actual U.S. content of the automobile. In addition, the 25 percent tariff shall be applied retroactively (from April 3, 2025, to the date of the inaccurate overstatement) and prospectively (from the date of the inaccurate overstatement to the date the importer corrects the overstatement, as verified by CBP) to the full value of all automobiles of the same model imported by the same importer."

"Bottom line is: don't get it wrong," he said.

Ujczo said there have been several government reports about the state of the auto industry since 2019, particularly how the NAFTA renegotiation affected the auto industry, and he said they were "a bit of a good news story," but the International Trade Commission did show a significant increase in imported parts not claiming USMCA, particularly from Mexico. The ITC also said that U.S. parts' share of production in North America declined by 3% during 2018-2022.

He said these issues -- along with America's unwillingness to agree to a panel decision on how to calculate regional value content in supercore parts -- could have been tackled in the USMCA review. "The Trump administration said: we’re not waiting around." He said the roll-up dispute "is what this is all about, at the end of the day."