WASHINGTON: US President Donald Trump’s rewrite of North American trade rules will cost automakers nearly $3 billion more in tariffs over the next decade for cars and parts that will not meet higher regional content requirements over the next decade, the Congressional Budget Office (CBO) estimates.
The projection was contained in the non-partisan budget referee agency’s cost estimate of implementing legislation for the new US-Mexico-Canada Agreement, which will be considered by the US House of Representatives on Thursday.
USMCA, the replacement for the 26-year-old North American Free Trade Agreement (NAFTA) is expected to pass the House with broad support from Republicans and Democrats.
For autos to receive tariff-free access between the three countries, the USMCA imposes a 75 per cent regional content requirement, up from 62.5 per cent in NAFTA, along with new mandates to use North American steel and aluminium.
In addition, 40 per cent to 45 per cent of vehicle content must come from high-wage areas paying more than $16 an hour, namely the United States and Canada. Some vehicles produced in Mexico mainly with components from Mexico and outside the region may not qualify for US tariff-free access.
CBO said its estimate assumes that some vehicles and parts would not be eligible for USMCA’s tariff-free access.
“Because of that change in eligibility, CBO projects that duty-free imports of vehicles and parts into the United States from the USMCA partner countries would decline,” the agency said.
While it said a portion of those vehicles and parts would be replaced by US production, some imports of non-USMCA-compliant vehicles and parts would continue, receiving less favourable treatment.
The $2.97 billion increase in total customs revenues through fiscal 2029 starts at an increase of $10 million in 2020 and rises to $450 million by 2029, CBO said. The figure includes a partial offset from slightly lower projected tariff collections on agricultural products.
CBO said some agricultural product imports that are now subject to duties would be replaced by duty-free Canadian products as a result of USMCA. Overall, the USMCA bill would cut the federal budget deficit by $3.04 billion through 2029, including a reduction in some federal payments to support US dairy producers because of increased access to the Canadian dairy market.
In April, the US International Trade Commission (ITC) found that USMCA would modestly boost the US economy, especially auto parts production over current conditions, but may curb vehicle assembly and limit consumer choice in cars.
The ITC report estimates that annual US real gross domestic product would increase by 0.35 per cent, or $68.5 billion, on an annual basis compared to a NAFTA baseline, and would add 176,000 US jobs while raising US exports.
Auto industry employment would rise by 30,000 jobs for parts and engine production, but US vehicle assembly would decline.
Michigan’s two Democratic senators have endorsed a revised version of the deal that contains stronger labour enforcement provisions.
The 1.4 million-member International Brotherhood of Teamsters and the AFL-CIO have endorsed the deal, but the United Auto Workers (UAW) union has remained non-committal. — Reuters