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Commentary & Voices

The United States-Mexico-Canada Agreement

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Article Highlights

  1. Beating an important deadline, Canada agreed to a proposed deal that would ultimately replace the North American Free Trade Agreement. While details of the new United States-Mexico-Canada Agreement – USMCA – are yet to be finalized, the new guidelines for trade across North America is an important milestone for the auto industry.
  2. “The new deal ensures the availability of a diverse set of vehicles from the most affordable compacts cars to the most popular pickups and will prevent a surge in pricing,” said Jonathan Smoke, Chief Economist, Cox Automotive.
  3. “Canada joining the new trade agreement was expected,” said Charlie Chesbrough, Senior Economist, Cox Automotive. “This a great news for the automotive industry as, once approved, longer-term strategic sourcing and manufacturing planning in the region can finally resume.”

Beating an important deadline, Canada last evening agreed to a proposed deal that would ultimately replace the North American Free Trade Agreement. While details of the new United States-Mexico-Canada Agreement – USMCA – are yet to be finalized, the new guidelines for trade across North America is an important milestone for the auto industry.

The actual agreement (you can read the 1000-plus pages here:TEXT) still needs to be ratified by the U.S., Canada and Mexico governments, and our Industry Insights team will be tracking the progress along the way. Below, you will find some of their initial commentary.

Jonathan Smoke, Chief Economist, Cox Automotive
Nearly a quarter of all new vehicles sold in the U.S. are assembled in either Mexico or Canada. And given decades of supply chain evolution based on NAFTA, a substantial portion of the vehicles assembled within the U.S. are dependent on components from Mexico and Canada. The new deal ensures the availability of a diverse set of vehicles from the most affordable compacts cars to the most popular pickups and will prevent a surge in pricing. That said, the industry is not out of the woods for price problems caused by new tariffs. Nearly a quarter of new vehicles bought by Americans are assembled in countries outside of North America and a substantial number of vehicles sold are dependent on parts from countries like China that remain very much in the crosshairs of the administration.

Charlie Chesbrough, Senior Economist, Cox Automotive
Canada joining the new trade agreement was expected. This a great news for the automotive industry as, once approved, longer-term strategic sourcing and manufacturing planning in the region can finally resume. Strategic planning for the North American industry has been in a constant state of flux over the last 18 months due to volatile trade policies. Now with some clarity around the import tariff policy for the region, suppliers and OEMs can refocus on making and selling products. However, the steel and aluminum tariffs remain and both are having negative effects on auto maker profitability.

Michelle Krebs, Executive Analyst, Autotrader
At more than 1,000 pages in length, we won’t fully understand the overall impact of the trade agreement negotiated over the weekend without further study and until it is officially approved later this year. However, the fact that there is a directional agreement at all, one that has a long-term horizon of 16 years and will allow automakers and their suppliers to do long-range planning, is a plus.

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