Key facts
- Mexico's automotive industry claims it faces higher effective tariffs under the USMCA than South Korean and Japanese competitors.
- The average effective tariff rate for Mexican vehicles under USMCA is reported to be 18.75%.
- Vehicles from South Korea and Japan face tariffs of 15% due to separate trade agreements.
- Mexico argues that compliance costs and administrative procedures add significantly to its tariff burden.
- Mexico has formally requested reforms to the USMCA automotive tariff system from the U.S. Trade Representative.
Mexico's automotive industry is voicing strong dissatisfaction with the current US-Mexico-Canada Agreement (USMCA), arguing that it imposes higher tariff burdens on their vehicles compared to competitors from South Korea and Japan. Mexican officials and industry representatives state that the average effective tariff rate on their auto exports reaches 18.75%, significantly higher than the 15% tariffs applied to vehicles from South Korea and Japan, who secured preferential rates through separate trade deals involving substantial U.S. investments.
The USMCA, which took effect in 2020, aims for tariff-free benefits for North American vehicles but includes stringent rules of origin, requiring over 75% of components to be sourced from North America. Failure to meet these criteria can result in U.S. auto tariffs of up to 25%, along with an additional 2.5% most-favored-nation tariff that Mexico claims is applied. Mexico contends that these requirements, coupled with administrative procedures and verification costs, increase production expenses by approximately 3%.
Mexico has presented data to the U.S. Trade Representative (USTR) seeking systemic improvements to the tariff structure. USTR officials have acknowledged Mexico's position, stating they understand Mexican vehicles should have a competitive advantage and are exploring alternatives, though disagreements exist regarding Mexico's tariff calculation methods. The current tariff structure is reportedly impacting production strategies, with Nissan Americas noting that Mexico-assembled vehicles might face higher burdens than imports from other regions. This situation has led some Asian automakers to reconsider their manufacturing operations in Mexico, and Nissan previously announced the closure of its Compas plant in October.