December 18, 2019 / 7:09 PM / a month ago

Automakers to pay $3 billion in new U.S. tariffs under USMCA: budget estimate

WASHINGTON (Reuters) - U.S. President Donald Trump’s rewrite of North American trade rules will cost automakers nearly $3 billion more in tariffs over the next decade for cars and parts that will not meet higher regional content requirements over the next decade, the Congressional Budget Office (CBO) estimates.

FILE PHOTO: Vehicles are seen parked in a lot at the port of Newark New Jersey, U.S., February 19, 2019. REUTERS/Eduardo Munoz

The projection was contained in the non-partisan budget referee agency’s cost estimate of implementing legislation for the new U.S.-Mexico-Canada Agreement, which will be considered by the U.S. House of Representatives on Thursday.

USMCA, the replacement for the 26-year-old North American Free Trade Agreement (NAFTA) is expected to pass the House with broad support from Republicans and Democrats.

For autos to receive tariff-free access between the three countries, the USMCA imposes a 75% regional content requirement, up from 62.5% in NAFTA, along with new mandates to use North American steel and aluminum.

In addition, 40% to 45% of vehicle content must come from high-wage areas paying more than $16 an hour, namely the United States and Canada. Some vehicles produced in Mexico mainly with components from Mexico and outside the region may not qualify for U.S. tariff-free access.

CBO said its estimate assumes that some vehicles and parts would not be eligible for USMCA’s tariff-free access.

“Because of that change in eligibility, CBO projects that duty-free imports of vehicles and parts into the United States from the USMCA partner countries would decline,” the agency said.

While it said a portion of those vehicles and parts would be replaced by U.S. production, some imports of non-USMCA-compliant vehicles and parts would continue, receiving less favorable treatment.

LOWER AGRICULTURE TARIFFS

The $2.97 billion increase in total customs revenues through fiscal 2029 starts at an increase of $10 million in 2020 and rises to $450 million by 2029, CBO said. The figure includes a partial offset from slightly lower projected tariff collections on agricultural products.

CBO said some agricultural product imports that are now subject to duties would be replaced by duty-free Canadian products as a result of USMCA,

Overall, the USMCA bill would cut the federal budget deficit by $3.04 billion through 2029, including a reduction in some federal payments to support U.S. dairy producers because of increased access to the Canadian dairy market.

In April, the U.S. International Trade Commission (ITC) found that USMCA would modestly boost the U.S. economy, especially auto parts production over current conditions, but may curb vehicle assembly and limit consumer choice in cars.

The ITC report estimates that annual U.S. real gross domestic product would increase by 0.35%, or $68.5 billion, on an annual basis compared to a NAFTA baseline, and would add 176,000 U.S. jobs while raising U.S. exports.

Auto industry employment would rise by 30,000 jobs for parts and engine production, but U.S. vehicle assembly would decline.

Michigan’s two Democratic senators have endorsed a revised version of the deal that contains stronger labor enforcement provisions.

The 1.4 million-member International Brotherhood of Teamsters and the AFL-CIO have endorsed the deal, but the United Auto Workers (UAW) union has remained non-committal.

“We already know that USMCA is highly unlikely to bring factories back from Mexico, as some have promised,” the UAW said in a statement last week. “It will hopefully stop some of the bleeding of U.S. jobs and UAW members will vigilantly monitor enforcement of the agreement to make sure multinational corporations treat their workers right.”

The United Food and Commercial Workers also declined to endorse the deal, saying that it failed to require strong country-of-origin food labeling.

Reporting by David Lawder and David Shepardson; Editing by Bill Berkrot

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