Will US vehicle assembly increase or decrease under the new trade agreement?

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US Vehicle Assembly Projected to Decrease Under New Trade Agreement

A report from the US International Trade Commission (ITC) indicates a projected decline in US vehicle assembly following the implementation of the United States-Mexico-Canada Agreement (USMCA). While the pact is anticipated to stimulate growth in auto parts and engine production, leading to an estimated 30,000 new jobs in these sectors, the assembly of complete vehicles in the US is expected to contract. This shift is attributed to the agreement's stricter regional content rules, which necessitate a higher percentage of a vehicle's value being sourced within North America.
Impact on Vehicle Assembly and Employment

The ITC's analysis forecasts a decrease in US vehicle assembly operations, even as employment in the production of automotive parts and engines is expected to rise by approximately 30,000 jobs. This divergence suggests a restructuring within the US automotive sector, with a potential shift away from final assembly towards component manufacturing. The report estimates that these changes will occur by the sixth year after the trade deal's full implementation.
Projected Price Increases and Consumer Impact

The USMCA is expected to lead to an increase in the price of US vehicles, with estimates suggesting a rise of up to 1.6 percent. This price inflation is projected to reduce overall vehicle consumption by around 140,000 units annually, representing a decrease of approximately 1.25 percent based on 2017 sales figures. This outcome could potentially limit consumer choice and affordability in the US auto market.
Automotive Sector Content Requirements

A key driver behind these projected changes is the USMCA's significantly tightened rules of origin for automobiles. The agreement mandates that 75 percent of a vehicle's value must be sourced from North America, a notable increase from the previous 62.5 percent under the North American Free Trade Agreement (NAFTA). Furthermore, 40-45 percent of a vehicle's content must be produced in high-wage regions, specifically the United States and Canada, aiming to incentivize production within these countries.

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Will US vehicle assembly increase or decrease under the new trade agreement?

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