US Considers Strengthening Auto Import Regulations to Boost Reshoring Efforts

US Weighs Changes to North American Trade Rules to Boost Domestic Auto Production

The Trump administration is considering potential changes to North American trade rules that would raise tariff costs on US automobile imports and push manufacturers to boost domestic production. According to people familiar with the matter, US officials have discussed requiring vehicle imports to have a minimum amount of US parts.

Another option under consideration would limit the ability of automakers to lower their tariff rates under the US-Mexico-Canada free trade agreement, effectively raising the costs to bring vehicles across the border. These considerations are at an early stage, and it is not immediately clear how they might work in practice.

The administration's review of the USMCA trade agreement is set to take place ahead of a planned review of the agreement, and no formal proposals have been made yet to trade leaders in Canada or Mexico. An official from the Office of the US Trade Representative stated that the administration is working to reshore US manufacturing, including through the review of USMCA.

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The considerations reflect frustration in Washington that trade policies have yet to produce a substantial reshoring of automobile and component factories to the US. President Donald Trump imposed a wave of tariffs last year to push companies to build more domestically, including a 25% tariff on imported vehicles and auto parts.

Despite automakers pledging billions in new investment and announcing plans to move some production to the US from Canada, Mexico, and Japan, a substantial uptick in auto investment has yet to materialize. The US remains heavily reliant on imports to satisfy domestic demand, particularly for vehicles starting at $30,000 or less.

Ahead of discussions between US and Mexico officials set to take place on April 20, Commerce Secretary Howard Lutnick criticized USMCA as a "bad industrial policy," saying it should be changed to benefit the US. Under current USMCA rules, 75% of a vehicle's parts must come from the US, Canada, or Mexico, and 40% to 45% must be made by workers who make at least $16 an hour.

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The US is currently applying tariffs to the non-US content of otherwise USMCA-compliant vehicles from Canada and Mexico, and the Trump administration has pledged to tariff USMCA-compliant auto parts in the same way. The administration is pondering ways to rein in tariff-reducing measures to raise how much companies would pay to bring USMCA vehicles across borders, which could subject US imports of USMCA-compliant vehicles to an effective tariff of roughly 10%.

The US, Canada, and Mexico must decide by July 1 whether to extend USMCA.