USMCA Agreement Takes Effect in July... North American Car Parts Supply Chain Reorganized Centered on the US

Possibility of Rising Automobile Manufacturing Costs Raised

North American Automotive Major Materials and Parts: Regional and Non-Regional Import Status

[Asia Economy Reporter Hwang Yoon-joo] With the ‘United States-Mexico-Canada Agreement (USMCA)’ set to take effect this July, there are concerns that the North American automotive material and parts supply chain will be reorganized primarily around the United States, prompting Korean companies operating in North America to urgently reassess their investment and production strategies.

According to the ‘USMCA Automotive Rules of Origin and Changes in the North American Automotive Manufacturing Supply Chain’ report released by the Korea International Trade Association on the 20th, the Trump administration in the U.S. aims to revitalize the domestic automotive industry by increasing new investments, production, and employment through the new North American Free Trade Agreement.

In particular, the U.S. imports 58.6% of its major automotive materials and parts from outside the region, which is higher than Mexico (42.9%) and Canada (28.4%). Recently, imports of core components have also increased, raising concerns that the production base and jobs in the automotive and related industries may decline.

The report pointed out, "Accordingly, during the USMCA negotiations, the U.S. devised unprecedentedly stringent rules of origin by raising the regional value content standard for passenger cars and core parts to 75%, adding requirements for high-wage labor value content, and imposing regional content requirements for steel and aluminum."

In other words, to receive tariff benefits under the USMCA agreement, a greater portion of key materials and parts required in the automotive production process must be sourced from the North American region, especially the United States.

The report emphasized, "If the U.S. intentions are realized, global automotive and parts manufacturers located in North America will inevitably need to adjust their supply chains and review new investment plans. In Mexico’s case, it is likely that imports of high value-added parts, steel, and aluminum from the U.S. and Canada will increase, and overall dependence on non-regional sources in North America may decrease."

Concerns were also raised that the USMCA could increase automotive manufacturing costs.

The report analyzed, "While the USMCA’s automotive rules of origin aim to strengthen the competitiveness of the U.S. automotive industry, they could lead to higher production costs, resulting in increased consumer prices and weakened global competitiveness of automakers operating in North America."

Seol Song-yi, Deputy Director of the Trade Support Center at the Korea International Trade Association, stated, "With the USMCA set to take effect on July 1, the unified implementation rules related to the rules of origin have not yet been announced, which is expected to cause considerable confusion in the related industries. Korean automotive and parts manufacturers and suppliers operating in North America must closely monitor USMCA developments and prepare countermeasures by reviewing complex factors such as new investments and costs associated with compliance."

This content was produced with the assistance of AI translation services.