Regarding the challenges surrounding automotive rules of origin in North America, the Baker Institute raised three questions. These questions were part of an investigation being conducted by the U.S. International Trade Commission (USITC).
Assuming that the rules of origin for the automotive sector are not reviewed annually (or on an ongoing basis) while the USMCA remains in effect. The Baker Institute believes that various challenges could arise. In particular, these challenges could surface beyond the 2026–2027 period.
Challenges Regarding Rules of Origin
First Question
If the popularity of electric and hybrid vehicles continues to rise in the United States—albeit at a slower pace than in most developed countries—how might the rules of origin be modified? More specifically, how could these rules ensure that a greater proportion of batteries and their components come from North America? In contrast, how could these rules limit content from China or other Asian countries?
Second Question
If the current administration—or a new one—were to ultimately decide to allow Chinese companies to invest in automotive production within the United States, how should the applicable rules of origin be structured? In that case, how could those rules ensure that such vehicles have a high regional value content? Also, how could the hardware and software of their “connected vehicle” systems remain under the control of non-Chinese manufacturers?
Third question
In the case of non-Chinese vehicles assembled in North America, how should the rules of origin be modified to ensure that infotainment and navigation systems are produced in Mexico or elsewhere in North America, rather than in China?
North American Automotive Industry
According to McKinsey & Company, in the United States, the automotive industry accounts for about 5% of GDP (equivalent to approximately $1.2 trillion).
Exports total $151,000 million, and the 10 million people employed—directly or indirectly—make up about 10% of the total U.S. workforce.
Their research suggests that, “to maintain their global position and manage long-term risks, North American original equipment manufacturers (OEMs) can strengthen their partnerships with stakeholders throughout the value chain and reaffirm their position within the broader automotive ecosystem.”
According to the Baker Institute, this requires the North American automotive industry to remain highly integrated.