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Tuesday, 07 July 2020 22:07

The New Trade Agreement is in Force: How It Affects Auto Retail

Written by Jason Unrau, CBT Automotive Network

Index

On July 1, the trade agreement that replaces the decades-old North American Free Trade Agreement became active.

The U.S.-Mexico-Canada Agreement, or USMCA, is intended to help balance the American economy and inject more jobs, particularly in the manufacturing sector. The deal that is years in the making will have direct impacts on the automotive industry, and those changes will filter down to auto dealers. 

 

The new USMCA agreement puts a great deal of emphasis on the automotive industry’s manufacturing sector at home. In the deal, both labor and materials are encouraged to be sourced on domestic soil rather than in markets that undercut pricing. There are two key components for the rules of origin.

 

It requires 75% of all vehicle content sold in the U.S. to be sourced in North America. This blocks out cheap raw materials coming from Asian markets that can suppress American production in steel and aluminum specifically. 

 

It also requires that 40 to 45% of all auto content earns a minimum $16 per hour, encouraging carmakers to keep jobs in the U.S.

 

Benefits on tariffs are on the table for manufacturers that comply with the Rules of Origin component of USMCA.

 

In the agreement, trade between the three nations involved is supported with several new steps and cleaning up some of the bureaucracy and redundancies. It paves the way for simplified trade across borders, potentially keeping a free-flowing pipeline of North American-made cars to fill dealers’ lots.

 

As with any deals of this magnitude, the effects are felt through every level of the industry. For auto dealers, there’s no question that the USMCA will impact business, although it’s not clear yet to what extent.

 

YouGov survey in 2018 shows 76% of American adults aged 18-plus will tend to buy American-made products when given the choice.


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