USMCA-Compliant Auto Parts Exempt from 15% Tariff
Vehicles and automotive parts that meet the U.S.-Mexico-Canada Agreement's (USMCA) rules of origin will remain exempt from the new 15% U.S. global tariff. The exemption was clarified in a *Federal Register* update following recent trade policy shifts. This positions USMCA eligibility as a critical factor for tariff mitigation in the North American automotive supply chain.
- The 15% global tariff was enacted under Section 122 of the Trade Act of 1974 and is a temporary measure, currently set to expire after 150 days unless extended by Congress. This action followed a Supreme Court decision on February 20, 2026, that ruled previous tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were an overstep of presidential authority. - To qualify for the tariff exemption, passenger vehicles and light trucks must meet a 75% regional value content (RVC) threshold under USMCA rules. This is a significant increase from the 62.5% requirement under the previous NAFTA agreement. - In addition to the RVC, there is a "Labor Value Content" (LVC) rule requiring that 40-45% of an automobile's value must be sourced from manufacturing facilities where workers earn at least $16 USD per hour. - The rules also stipulate that 70% of the steel and aluminum purchased by vehicle producers must originate from North American sources for the final product to qualify for preferential treatment. - Auto parts have their own tiered RVC requirements to qualify, ranging from 65% to 75% for core, principal, and complementary parts. This has pushed manufacturers to increase sourcing from North American suppliers. - Side letters to the USMCA provide a partial shield against potential future Section 232 tariffs on automobiles and parts from Canada and Mexico, establishing duty-free import quotas. For Canada, this includes 2.6 million vehicles and up to $34 billion in auto parts annually; for Mexico, it covers 2.6 million vehicles and up to $108 billion in parts. - The U.S. International Trade Commission (ITC) is currently conducting a formal review of the USMCA's automotive rules of origin to assess their economic impact and relevance, particularly with the industry's shift toward electric vehicles. A final report is expected by July 2027, creating a period of regulatory uncertainty for the industry.
