Automakers building vehicles in Canada and Mexico are being squeezed by new U.S. trade enforcement, facing higher import costs due to insufficient documentation of American-made content.
According to an analysis by T.D. Cowen and the U.S. International Trade Commission, the average tariff on passenger cars imported across the northern and southern borders reached 19 percent in July—driven by automakers’ inability to prove compliance with the United States-Mexico-Canada Agreement (USMCA).
The USMCA requires that 75 percent of every vehicle’s parts come from North America, 70 percent of the steel and aluminum used in its construction originate from within the region, and at least 40 percent of the vehicle’s value be tied to plants where workers earn a minimum of $16 an hour. Any vehicle that fails to meet those thresholds is subject to a 25 percent tariff on its total value; otherwise, the tariff rate is applied to the non-US content only.
Auto parts sold purely as replacement components remain exempt from duties.
While automakers can reduce that penalty by providing documentation regarding their U.S.-made content, many appear to be struggling to do so.
“There are a lot of complexities in the automotive sector, in particular to track parts, vehicles, USMCA, and how the tariff rates apply,” Angela Gamalski, a partner at Honigman specializing in international trade compliance, told Automotive News. “The guidance and direction is still being released.”
With parts sourced from dozens of suppliers across multiple countries, maintaining clear documentation of where each component originates is a logistical nightmare—even a small miscalculation in regional content can translate into millions in unexpected duties.
After decades of global sourcing, many automakers simply lack clear visibility into the origin of every nut, sensor, or subassembly that makes up a modern vehicle, especially when looking at the Tier 2 and 3 suppliers who provide sub-assemblies, components, and raw materials to the big Tier 1 players contracted directly by the OEM.
[Images: General Motors]
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