Summary Of Automotive Provisions Of USMCA*

The automotive industry has a long history in North America. For example, Ford started making cars in the US in 1903. It started making cars in Canada in 1904. By 1925, it had production in Mexico. Interestingly, this production was for domestic consumption only - trade barriers prevented cars from being transported for sale among the three countries. By the way, Canada did pretty well on its own for many years because it was able to ship cars into the English Commonwealth countries, an early example of the effects of free trade.

This all started to change in 1965 with the US-Canada Auto Parts Pact, which eliminated tariffs on vehicles and parts. This led to the broader US-Canada Free Trade Agreement in 1989. By then, the then-Big Three had rationalized vehicle and parts production across the two countries.

Mexico started liberalizing its trade policies during the 1980s. The most visible example of that was probably the maquiladora regime, allowing production using Mexican labor for components used in US assembly plants.

This merging of the economies culminated with the North American Free Trade Agreement ("NAFTA") being adopted in 1994. There was a phase-in period, lasting as long as 10 years, but today, 25 years into the process, the borders have ceased to exist for North American producers. If you look at a map of original equipment manufacturer ("OEM") and supplier plant locations, you can see an apparent attempt to localize parts production near each model's assembly plant, but those plants are scattered across all three countries. The supplier industry is even more obviously integrated, with that proverbial part crossing just the US/Canadian border seven times.

It is true that this opening of the borders has resulted in a realignment of ultimate production. In broad brush, US light vehicle production went from 78% of the total North American production in 1995 to 65% in 2018, and Canada's share of production went from 16% to 12% in that period. Meanwhile, Mexico's share of production went from 6% in 1995 to 23% in 2018. I expect there were similar changes in parts production as well.

Some in the US saw this re-allocation of production as a bad thing, stemming from a single wicked source. Without getting into the details, let's just jump to the present, and say that we are now faced with a new reality. The United States-Mexico-Canada Agreement ("USMCA") is here, it is mostly settled, it is probably on its way to be adopted by the three...