U.S. Trade Deal Would Cap Imports from Mexico

The tentative trade deal between the U.S. and Mexico includes a side deal that limits how many duty-free cars from Mexico can ship to the U.S., Reuters reports.

The multi-tiered scheme would enable Mexico to continue shipping vehicles to the U.S. without incurring tariffs, just as it does now under the soon-to-be-replaced North American Free Trade Agreement.

To qualify, those vehicles must meet two requirements. First, they must contain at least 75% North American content (up from 62.5% currently). Second, at least 40% of their content must come from factories that pay workers at least $16 per hour.

Even so, the U.S. would accept no more than 2.4 million such tax vehicles per year. Greater volumes of qualifying cars would incur the 2.5% “most-favored nation” tariff the U.S. currently levies on vehicles coming from plants outside North America. The extra Mexican-sourced cars would pay an unspecified higher rate if they don’t meet the new local content and labor rate requirements.

The side agreement includes the possibility that the U.S. will raise its favored-nation tariff above 2.5%.

In yet another scenario, that rate could leap to 25%. This would occur if the Trump administration moves ahead with its threat to use national security as a rationale to impose the higher rate on foreign vehicles in general. Reuters says Mexico would retain the right to object to the higher rate by petitioning the World Trade Organization.

Mexico also would be allowed to avoid tariffs on no more than $90 billion in annual auto parts shipments to the U.S. Higher volume could be subjected to the 25% “national security” tax if the White House decides to impose one.