Trump Wants to Dictate Production Under USMCA

The Trump administration is lobbying for the power to unilaterally dictate where cars and parts are made in order to qualify for duty-free shipping under the U.S.-Mexico-Canada Agreement, according to Bloomberg News.

Sources tell the news service the effort constitutes the most direct attempt yet on the part of the White House to directly manage automotive trade and production in North America. President Donald Trump has been adamant about using USMCA to lure auto jobs back to the U.S.

The proposed pact dictates that vehicles qualify for duty-free status in North America only if 75% of their content is made within the region, they contain 70% steel and aluminum from North America and that 40% of vehicle value comes from factories that pay workers at least $16 per hour.

The White House wants to embed specific language in USMCA that defines the government’s exclusive right to define production choices that producers must make to continue the tax-free commerce they enjoy under the outgoing North American Free Trade Agreement.

Government, congressional and industry representatives are discussing the administration’s plan, Bloomberg reports. It says the latter two groups, along with the U.S. International Trade Commission, warn that the proposed rules would be so strict as to drive up car prices and depress sales.

Critics worry that the Trump initiative would open the industry to politically based directives that play favorites among companies and could disrupt supply chains with each change in presidential administration.

Proponents say strict rules under USMCA are needed to prevent China and other low-cost producers from evading regional import tariffs. Foreign-based suppliers could do so by shipping parts to Mexico or Canada, where they are added to vehicles that ship duty-free within the region.

Canada, Mexico and the U.S. signed the USMCA a year ago, but only Mexico has ratified the treaty to date. Democrats in Congress have been pushing to toughen the deal’s labor rules ahead of ratification.