Will Tariffs Affect Price And Availablity Of Auto Repair Parts

The U.S.-Mexico-Canada Agreement (USMCA) takes effect July 1 2022. It will replace and modernize the 26-twelvemonth-sometime N American Complimentary Merchandise Agreement (NAFTA), with the aim of supporting mutually beneficial trade.

This understanding is expected to impact the future of the automotive industry's supply chain due to new and elevated requirements.

Under USMCA, the rules of origin for automotive industry producers have been elevated from previous NAFTA standards, with the most significant changes as follows:

Regional Value Content

Ultimately, by 2023, the agreement requires 75% of rider vehicle and light truck components to be manufactured in a USMCA country without being subjected to tariffs.

The aforementioned standard will apply to core parts but will exist slightly lower for complementary and principal parts, for which the content requirements will exist 65% and 70%, respectively, by 2023. This is an increase from the current NAFTA provision of 62.five% that will remain in effect until USMCA is ratified.

Labor Value Content Rule

Get-go in 2022, 30% of piece of work completed on rider vehicles must be performed past workers earning at to the lowest degree $16 per hour. This percentage will increase to 40% in 2023.

Steel and Aluminum Purchases

Kickoff in 2022, 70% of steel and aluminum purchases must exist fabricated in a USMCA country.

Potential Relief with Section 232 Tariff Quota Exemptions

In May 2022, President Donald Trump directed the U.S. Department of Commerce under Section 232 of the Merchandise Expansion Act of 1962, to review whether imported vehicles posed a threat to national security.

Related to this, President Trump proposed imposing 25% tariffs on imported automobiles and automotive parts. Probes were initiated into these potential threats, only findings have not yet been released nor a decision made with regard to boosted tariffs beyond those in place for steel and aluminum, for which Mexico and Canada are already exempt.

As part of USMCA, the U.S. signed side letters with Canada and Mexico to establish quotas exempt from potential Department 232 tariffs. Additional side letters were likewise signed to constitute a 60-solar day process negotiation period, if Department 232 tariffs are implemented.

Takeaways

Information technology is difficult to predict what the exact effect of USMCA volition exist on the automotive industry. Based on what we know, we can likely expect the following:

College Costs

Manufacturers may incur additional cost and time to run across content, labor, and purchasing reporting requirements.

To meet wage requirements, the labor value requirement will likely atomic number 82 manufacturers with deeper roots in USMCA countries to shift production jobs from Mexico to the U.S. and Canada.

It is also likely that higher content percent requirements will raise textile costs to manufacturers. Higher material and labor costs volition ultimately increment retail prices that may influence consumers in the market place for replacement vehicles to consider used vehicles that are less expensive. Financing more than expensive vehicles may besides become more difficult for less creditworthy consumers.

Potential Benefits

A potential win for manufacturers complying with USMCA is the quotas exempt from Trump administration tariffs under the 232 side letters.

The need to address such bug in side letters indicates an even greater probability that such tariffs will be implemented in the most future.

If this happens, manufacturers operating under USMCA may experience a competitive reward, assuming costs of compliance are lower than the potential 25% tariffs. Consumers may be influenced to motion to USMCA brands for which new-vehicle prices will likely not increase as considerably.

In lite of the coronavirus pandemic that has already caused global plant shutdowns, automakers are evaluating whether the new requirements can exist met by the effective date of July one.

At the aforementioned time, the Role of the U.S. Trade Representative has requested petitions from automakers seeking extensions on the new requirements that, if granted, would extend the stage-in period from 3 to five years. Ultimately, whether automakers seek and are granted such extensions, the race is on to comply with the inevitable changes coming nether USMCA.

Ashlie Lopez (pictured above, left) is senior manager in the audit department at accounting firm MBAF.

Source: https://www.wardsauto.com/industry-voices/how-usmca-will-affect-auto-industry

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