WASHINGTON/MEXICO CITY -- A proposed U.S.-Mexico trade deal would allow President Donald Trump to slap punitive tariffs of up to 25 percent on imports of Mexican-made cars, SUVs and auto parts above certain volumes, auto executives and sources said on Tuesday.
The United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA), pressuring Canada to sign up to new auto trade and dispute settlement rules to remain part of the three-way pact.
But a previously unreported side agreement between the two countries would allow the U.S. to pursue "national security" tariffs on annual Mexican car and SUV imports of over 2.4 million vehicles. The side deal would allow national security levies on auto parts imports above a value of $90 billion per year on the same grounds. The administration plans to announce the results of a probe into whether autos and part imports pose a national security risk in the coming weeks.
Click here for a summary from the U.S. Trade Representative's office.
The study could be used to justify 25 percent U.S. tariffs on automotive imports on the basis that protecting the U.S. auto industry is vital to national security under a Cold War-era trade law.
Automakers are concerned that the agreement signals the U.S. will proceed with national security tariffs – and are likely to use the tariffs to win concessions from the European Union and Japan as well. They have said the tariffs could cost hundreds of thousands of jobs and dramatically raise vehicle prices.
A separate side-agreement lays out a possible scenario in which the U.S. increases its normal "most-favored nation" tariffs on autos, currently 2.5 percent. A potential new, unspecified rate would be applied to vehicles that do not meet the existing or revamped NAFTA.
-- To qualify for duty-free status: 75 percent of the value of a vehicle must be produced in the United States or Mexico, up from NAFTA's three-country threshold of 62.5 percent. Forty to 45 percent of a vehicle's value must be made in wage areas paying at least $16 an hour.
-- Greater use of U.S. and Mexican steel, aluminum and glass.
-- A 16-year lifespan for the deal, with a review every six years that can extend the pact for 16 years more.
-- Elimination of a settlement system for anti-dumping disputes (NAFTA's Chapter 19).
-- U.S. “national security” tariffs of up to 25 percent on annual car and SUV imports over 2.4 million vehicles and auto parts imports above a value of $90 billion per year.
Sources: Reuters, Automotive News research
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