Home Business-newBusiness What would be the impact of a USMCA renegotiation on the Automotive Industry?

What would be the impact of a USMCA renegotiation on the Automotive Industry?

by Yucatan Times
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The United States-Mexico-Canada Agreement (USMCA), which took effect in July 2020, has brought about transformative changes to the North American automotive industry. Replacing NAFTA, the USMCA was designed to modernize and strengthen regional production by introducing updated rules and standards that promote local manufacturing, increase regional content, and encourage investment across the U.S., Mexico, and Canada.

As a key player in this shift, Mexico has solidified its position as a global automotive powerhouse, producing 4 million vehicles in 2023 —an amount expected to be surpassed this year.  In the first seven months of 2024 alone, Mexico produced 2.29 million vehicles, marking a 4.9% increase compared to the same period in 2023.  Regarding exports, by July 2024, Mexico had exported 1.98 million vehicles, 8.44% more compared to 2023, with nearly 80% of the total exports going to the United States.

Trump’s broadside sent the Mexican and Canadian currencies tumbling, and shares of U.S. and European automakers dropped on the increased uncertainty.

“If implemented, this would spell disaster for the U.S. auto industry and Detroit Three manufacturers, all of whom import significant numbers of vehicles from Canada and Mexico, as well as Volkswagen and other European OEMs,” Bernstein analyst Daniel Roeska said in a note.

Ford and General Motors were among the automakers whose shares fell sharply. Energy shares were mixed.

Drilling and refining industry lobbying groups warned of big effects, including higher import prices and less available supplies of oil feedstocks and products, as well as potential retaliation that could hurt consumers.

The United States needs to import crude oil to meet its daily consumption needs, and Canada is its biggest foreign supplier, sending more than 4 million barrels daily, largely by pipeline.

“Maintaining the free flow of energy products across our borders is critical for North American energy security and U.S. consumers,” said Scott Lauermann, spokesperson for API, a trade group representing the U.S. natural gas and oil industry.

On Tuesday, November 26th, Deutsche Bank analysts estimated the proposed tariffs on Mexico and Canada would increase U.S. inflation temporarily, and they raised their 2025 core personal consumption expenditure price index inflation forecast from 2.6% to 3.7%. It was at 2.7% in September.

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