USMCA exemptions will do little to mitigate impact of U.S. auto tariffs: study

The tariff exemptions within the new United States-Mexico-Canada Agreement (USMCA) will do little to mitigate the detrimental effects of the Trump administration’s proposed Section 232 tariffs on autos and auto parts, according to a new study.

A Center for Automotive Research (CAR) report released Friday concluded the Trump administration’s proposed Section 232 tariffs on autos and auto parts could raise vehicle prices in the United States by as much as US$2,750.

“A decision to impose tariffs on U.S. imports of autos and auto parts … could far outweigh the impact of any previous trade action on the U.S. automotive industry, and on related U.S. consumer prices, sales, and employment,” the study says.

“Moreover, this is true even though the implementation of the new (USMCA) and other trade agreements will partially mitigate the effects of these tariffs.”

The four authors of the CAR report looked at 10 different scenarios for the American auto industry involving the Trump administration’s trade policy, including Section 232 tariffs on auto and auto parts as well as tariffs on steel and aluminum, Section 301 tariffs on Chinese imports and the implementation of USMCA.

The most harmful scenario, according to the report, would be if the Trump administration imposes Section 232 tariffs on imports of light vehicles and car parts, with exemptions only offered to Canada, Mexico and South Korea.

“Ninety-point-five per cent of the total economic harm results from this single action,” the report said. In the worst-case scenario, the price of a vehicle in the U.S. would jump by US$2,750, while a best-case scenario would see a more modest increase of US$350.

“Broad-based automotive tariffs threaten more than 366,000 jobs. While the trade restrictions adopted or under consideration are intended to assist U.S. workers, these policies are likely to be extremely disruptive to and negative for the U.S. economy.”

The report said the increase in vehicle costs could decrease sales in the U.S. by 1.3 million units per year. It could also lead to substantial job losses. Under a worst-case scenario, the authors estimate that more than 366,000 jobs will be lost in the U.S.

The report also found that dozens of vehicles currently produced and sold in North America would fail to meet the content requirements outlined in USMCA. Under the new trade deal, which will replace the North American Free Trade Agreement, the rules of origin requirements for North American content will increase from 62.5 per cent to 75 per cent. CAR estimates that 47 vehicle models – 20 of which are made in the U.S. – currently produced and sold in Canada, the U.S. and Mexico do not meet the new rules of origin requirements.

“The shift from NAFTA to USMCA is incorporated as a slight increase in the U.S. consumer prices of vehicles assembled in Canada or Mexico,” the report said.

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