The trade disruption and inflation caused by President Donald Trump’s global trade war that began last year could pale in comparison to what happens once the U.S., Mexico and Canada begin negotiations over the USMCA.
Since the United States-Mexico-Canada Agreement went into effect on July 1, 2020, during the first Trump administration, it would be reasonable to assume that the trilateral trade agreement would have a good chance of moving past the mandatory six-year joint review intact.
But that assumption is flawed.
“What was once expected to be a routine assessment aimed at improving implementation is now likely to become a high-stakes negotiation,” the Center for Strategic and International Studies said. “The Trump administration is poised to seek additional concessions from Mexico and Canada on long-standing trade disputes, while also leveraging the review to address non-trade issues such as migration, drug trafficking, and continental defense.”
The automotive industry is one of the biggest stakeholders in this discussion, and this week, Ford CEO Jim Farley laid out the arguments his company plans to bring to the negotiating table.
Ford has already been at the negotiation table with other stakeholders like the United Auto Workers union, which completely opposes the legislation, as well as the President. The formal review of the USMCA is scheduled to start in July.
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Ford CEO Jim Farley lays out strategy for USMCA negotiations
In 2024, the year before U.S. tariffs upended trade, the trade volume among North American countries reached $1.6 trillion, a 1.3% year-over-year increase.
The auto industry is the largest component of total trade in North America, accounting for 22% of USMCA trade and employing 9.7 million people directly and another 11 million throughout the supply chain just in the U.S.
“USMCA is really critical for our country. We built this whole auto manufacturing ecosystem considering all three countries in an integrated way,” Farley recently told the Detroit Free Press.
“And yes, we are the most American. We build the most here. We have the most UAW workers. We export the most. But without Mexico and Canada, cars would be a lot more expensive for customers,” Farley said.
Last year’s tariffs added $41 billion to the cost of vehicles and parts, according to JPMorgan. Those costs amounted to an increase of about $2,580 per vehicle, or about 5.8% of the average retail price.
“Really, our priority is to be able to import parts, build as much as we can in our country, but import parts to make the vehicles as affordable as possible,” Farley shared.
While Farley says the USMCA, like its predecessor, the North American Free Trade Agreement (NAFTA), helps keep car prices low in the U.S., he admits the agreement has some flaws that need to be ironed out.
“So what we’ll be looking for in the new negotiation is really making sure that if a vehicle is imported from Mexico and Canada, it is done on a level playing field,” he said. “So if you’re not compliant with USMCA, it should be very expensive to do that. If a company decides not to be compliant with the legislation, then it should be a lot more expensive.”
We also want ot be able to import parts without punitive tariffs. We are not only working with the Trump administration but also with the governments of Canada and Mexico right now. So far, everyone is sorting each other’s positions out.
UAW continues opposition to USMCA
With more than a fifth of the trade under the USMCA trilateral trade agreement coming from the automotive industry, the United Auto Workers union and its 400,000 active members are among the biggest stakeholders in these negotiations.
UAW President Shawn Fain was wearing a “Kill NAFTA” during a video call last month, according to the Wall Street Journal, when he made his union’s opposition to the agreement clear.
“Where it didn’t eliminate jobs entirely, it slashed wages and benefits,” Fain said of the USMCA. “There is no future for the U.S. working class that doesn’t address the free-trade disaster.”
The UAW believes the USMCA should completely overhaul the requirement that 40% to 45% of the auto content must be made by workers earning at least $16 per hour. That requirement guarantees that Mexican auto workers receive pay equal to that of their U.S. counterparts.
Fain says that scrapping that requirement would help curb job offshoring and improve conditions for Mexican workers.
Fain also wants a revised USMCA to toughen penalties on companies that violate workers’ rights and to set quotas requiring companies to manufacture a larger share of vehicles and components in the country where they are sold.
Meanwhile, Farley says he has been in contact with the UAW and appreciates their point of view.
“The good thing is Ford is respected. We’ve earned that respect,” Farley said.
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