North American Automotive Production under the T-MEC

Between 2019 and 2021, with the implementation of the T-MEC and the COVID-19 pandemic in between, Washington regained ground in manufacturing at the expense of its two regional trading partners.

North American Automotive Production under the T-MEC
T-MEC helps the United States gain market share in the automotive industry. Photo by carlos aranda / Unsplash

The United States has gained a share in total North American car and light truck production throughout the Mexico-U.S.-Canada Agreement (T-MEC). According to data from the Federal Reserve (Fed), the region made a total of 13 million 427,869 of these units in 2021. This is a 4% increase from the year before.

The United States received 68.3 percent of that total, representing a relative increase over the 2019 (64.7 percent) and 2020 (65.9 percent) figures. In contrast to the growing U.S. trend, the shares of Mexico and Canada have shrunk over the same period. Up front, Mexico's coverage went from 23.9 percent in 2019 to 23.8 percent in 2020 and then dropped again, to 23.4 percent in 2021.

Mexico is the main external supplier of the automotive industry in the U.S. market, with diversified exports ranging from motorcycles and automobiles to tractors, buses, trucks, and specialty vehicles, in addition to auto parts. Compared to the same years, Canada's trend started with an 11.4% share, then went to 10.3%, and ended at 8.3%.

The T-MEC went into effect on July 1, 2020, with stricter rules of origin that increased the regional content value from 62.5 to 75% for passenger cars, light trucks, and certain parts.

The Congressional Budget Office (CBO) predicted that the stricter rules of origin for motor vehicles and the new wage requirements in T-MEC will lead to fewer motor vehicles and parts being brought into the United States duty-free.

Some of that decline would be replaced by domestic production, while some would be replaced by imports subject to duties. CBO thinks that over the next 10 years, about $3 billion in tariffs will be paid by U.S. importers of motor vehicles and parts that do not meet the higher rules-of-origin requirements.

The effects of the T-MEC rule change

The U.S. International Trade Commission did a study on the 2019 T-MEC. The study found that changes to the rules of origin would have the most significant effects on the U.S. economy and the motor vehicle industry. These changes could lead to price increases or decreases in the number of vehicles sold in the U.S.

According to an analysis done by the U.S. Congress, automakers in Mexico are worried that they could lose market share in the U.S. to cars that come from Asia.

Even with these worries, some automakers still support the T-MEC. They say that following the new rules of origin may be hard, but probably not impossible.

A decade ago, in 2011, the U.S. share of total car and light truck production in the North American region was 64.3 percent, while Mexico's share stood at 19.9 percent and Canada's slice was 15.8 percent.