How will the USMCA impact auto parts production in the United States?

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The USMCA is projected to modestly increase US auto parts production and create jobs, though vehicle assembly and consumer choice may be affected.

The new North American free trade agreement, the USMCA, is expected to lead to a moderate rise in US auto parts production and associated employment. This impact stems from the agreement's significantly stricter regional content requirements for vehicles traded within North America. While boosting parts manufacturing, the pact may also see a decrease in overall vehicle assembly in the US and potentially higher vehicle prices for consumers.
Increased Regional Content Requirements Drive Parts Production

The USMCA mandates that 75 per cent of a vehicle's value must be sourced within North America, an increase from the previous 62.5 per cent under NAFTA. Furthermore, 40-45 per cent of a vehicle's value must be produced in high-wage regions, specifically the United States and Canada. These tighter rules are designed to encourage greater domestic and regional sourcing of automotive components.
Projected Job Growth in Auto Parts and Engine Manufacturing

The agreement is anticipated to create approximately 30,000 jobs related to auto parts and engine production in the United States. The US Trade Representative's office has projected even broader job creation within the automotive sector, estimating 76,000 jobs within five years as automakers invest around US$34 billion in new facilities to comply with the revised content rules.
Potential Impact on Vehicle Assembly and Consumer Prices

Despite the positive outlook for parts production, the USMCA is also projected to lead to a decline in US vehicle assembly. The US International Trade Commission (ITC) report suggests that some automakers might find it too costly to meet the new regulations for certain vehicles, potentially leading to a reduction in the variety of cars available to US consumers. This could result in a slight increase in average vehicle prices, estimated to be up to 1.6 per cent, consequently affecting overall vehicle consumption.
Industry Perspectives on Investment and Sourcing

Industry groups, such as the American Automotive Policy Council, believe that the ITC's analysis may underestimate the long-term investments and increased sourcing of US auto parts that will occur due to the certainty provided by the USMCA. They argue that the agreement's predictability will encourage substantial investment in the sector, further bolstering domestic parts production beyond initial projections.

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How will the USMCA impact auto parts production in the United States?

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