New rules are designed to protect US manufacturing jobs.
America's northern and southern neighbors are officially teaming up over what they deem to be an unfair interpretation of North American automotive free trade rules. Per Reuters, Canada has officially signed Mexico's complaint against the US over new rules in the US-Mexico-Canada free trade pact (USMCA), which replaced the North American Free Trade Agreement (NAFTA) in 2020. More specifically, the issue at hand is how the new rules are being interpreted.
This saga began early last month when Mexico said it might sue the US over a provision in President Biden's Build Back Better Act stating that only American, union-built electric vehicles will receive subsidies of up to $12,500. Automakers like Toyota, Hyundai, and Honda were not pleased because their US-based factory workers are not unionized. Mexico claims EVs built there are also being discriminated against.
Canada soon announced it shared Mexico's concern over these EV tax credits. Canada's Trade Minister, Mary Ng, sent a letter to the US Senate leadership expressing concern and warning of reprisal tariffs on Canadian steel and aluminum. According to the USMCA, 75 percent of a vehicle's components must come from the three countries in order to receive tax-free status. The old NAFTA agreement had that figure at 62.5 percent.
Canada and Mexico are demanding "a more flexible interpretation" of those new regulations. "The interpretation that the United States adopted… is inconsistent with USMCA and the understanding shared by the parties and stakeholders throughout the negotiations," Ng said in a statement.
Mexico's Economy Minister, Tatiana Clouthier, welcomed Canada's stance. "The regional industry that has been developed for a long time has to be defended," she said. What does the US have to say? A spokesperson from the office of the US Trade Representative said America's interpretation of the agreement is consistent and necessary to create quality jobs and attract investment. America's neighbors are concerned the US's approach might force automakers to use cheaper parts originating from outside of North America.
Unless this dispute is resolved, there could be unfortunate consequences for popular vehicles not built in the US, such as the Ford Bronco Sport and Maverick, Chevrolet Blazer, and Dodge Challenger. There's no doubt automakers are monitoring this political showdown very closely.