USMCA: Are Governments Reshaping Manufacturing Industry Dynamics?

The economic landscape across North America is significantly shaped by intricate trade agreements and geopolitical moves. From USMCA’s impact on regional integration to escalating trade controls in China and labor agreements in the automotive sector, a series of pivotal developments steer the economic course.

The last three decades have witnessed Mexico's deep integration into global trade through the establishment of 14 Free Trade Agreements (FTAs) spanning across 54 countries. Each agreement presents unique challenges, while sharing common objectives: eliminating tariffs, diversifying trade, enhancing regional integration, promoting investment, and striving for fair trade practices.

In 2020, the transformation from NAFTA to USMCA reshaped the dynamics of Mexico's automotive sector, states Fausto López, Customs and Free Trade Agreements Manager, Volkswagen. This transition, which initiated on July 1, 2020, brought forth a paradigm shift, particularly impacting the automotive industry. It provided easier access to markets with preferential tariffs but simultaneously demanded a skilled workforce to meet stringent requirements, notably the certification of product origin.

“During the era of the Trump administration, the threat to NAFTA was imminent, and renegotiations took center stage,” highlights López. These negotiations introduced more stringent demands, reducing integration percentages but adding complexities, including sourcing steel and aluminum regionally, enforcing labor content, and ensuring regional integration in vehicle components.

USMCA poses new challenges for the future, particularly in the realm of electrification. The agreement mandates that electric vehicle batteries be manufactured within North America to meet origin requirements. With biennial reviews and a 10-year exit clause, USMCA continually shapes and directs Mexico's automotive industry.

“This pact presents significant hurdles for the sector, focusing on supply chains, workforce training, customs facilitation, adaptation to electrification, and dispute resolution. Overcoming these challenges will be pivotal for Mexico's automotive industry's future trajectory under the USMCA”, says López.