Why It Matters
A recent Congressional Research Service report highlighted ongoing disputes regarding the USMCA’s automotive provisions, even six years after replacing NAFTA. Key concerns center on how vehicle content is calculated. Currently, about 84% of U.S. auto imports from Canada and Mexico comply with USMCA content rules, but they still face tariffs on non-U.S. components due to Section 232 tariffs implemented in 2025. Additionally, some congressional members have proposed legislation to prevent Chinese-made vehicles from entering the U.S. via Canada or Mexico.
The Big Picture
When the USMCA took effect on July 1, 2020, it increased the regional value content requirement for passenger vehicles from 62.5% under NAFTA to 75%. The agreement also introduced a labor value content requirement, stating that 40 to 45 percent of production must earn at least $16 per hour and that 70 percent of steel and aluminum purchases must originate in North America.
A December 2022 dispute panel ruled against the U.S. in a conflict with Mexico and Canada over core auto parts valuation in the regional value content calculation. Mexico and Canada argued that qualifying core parts should count 100% toward the total calculation, citing agreed flexibilities. In contrast, the U.S. believed the value of materials not sourced from USMCA countries should be excluded. As of the CRS report’s June 23 publication, no resolution has been reached, and the USMCA lacks an appeal mechanism for dispute rulings.
The U.S. International Trade Commission’s 2025 biennial report showed mixed results since USMCA’s implementation, with a slight increase in U.S. parts production but a decrease in U.S. vehicle production. The Section 232 tariffs on vehicles and auto parts further complicated matters, with non-USMCA-compliant passenger vehicles facing a combined tariff of 27.5%. Meanwhile, USMCA-compliant vehicles still face tariffs on non-U.S. content, resulting in higher effective tariff rates compared to some imports from Japan or the EU.
In February 2026, Canada announced a deal with China allowing the import of up to 49,000 Chinese electric vehicles annually at a 6.1% most-favored nation rate.
The Bottom Line
Officials from the Trump administration have shown interest in reinforcing automotive rules of origin during the 2026 review, potentially pursuing a country-specific content threshold. However, it remains unclear if they will seek congressional approval for modifications. Given Canada’s retaliatory tariffs on $20 billion worth of U.S. goods that took effect on September 8, all eyes are on USMCA as upcoming negotiations in Washington approach.
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