Why It Matters
A recent Congressional Research Service report examined the USMCA agreement's automotive provisions and found that the rules remain contested six years after the deal replaced NAFTA, with unresolved disputes between the U.S. and its trading partners over how vehicle content is calculated.
Approximately 84% of U.S. auto imports from Canada and Mexico currently meet USMCA content rules, yet face tariffs on their non-U.S. components under Section 232 tariffs imposed by the Trump administration in 2025. Some members of Congress have also introduced legislation to prevent Chinese-made vehicles from entering the U.S. market via Canada or Mexico.
The Big Picture
USMCA raised the bar when it entered into force on July 1, 2020. The regional value content requirement for passenger vehicles climbed from 62.5% under NAFTA to 75% under the new agreement. The deal also introduced a labor value content requirement mandating that 40 to 45 percent of vehicle production must earn at least $16 per hour, and mandated that 70 percent of steel and aluminum purchases originate in North America.
A December 2022 dispute settlement panel ruled against the United States in a disagreement with Mexico and Canada over how core auto parts are valued in the regional value content calculation. Mexico and Canada contended that if a core auto part qualifies under USMCA, 100% of its value should count toward the overall calculation, citing flexibilities they said the parties agreed to during negotiations. The U.S. position held that the calculation should exclude the value of materials in core parts not sourced from a USMCA country. As of the CRS report's June 23 publication, no resolution had been reached, and USMCA includes no appeal mechanism for dispute panel rulings.
The U.S. International Trade Commission's 2025 biennial report found mixed results since USMCA took effect, with U.S. parts production slightly increasing while U.S. vehicle production decreased. Section 232 tariffs imposed in April 2025 on vehicles and May 2025 on auto parts have further complicated the landscape. Non-USMCA-compliant passenger vehicles now face a combined tariff of 27.5%, while USMCA-compliant vehicles remain subject to tariffs on their non-U.S. content, creating higher effective rates than some imports from Japan or the European Union.
In February 2026, the Canadian government announced a deal with China under which up to 49,000 Chinese electric vehicles annually can be imported at Canada's most-favored nation rate of 6.1%.
The Bottom Line
Trump administration officials have expressed interest in strengthening automotive rules of origin during the 2026 review, reportedly pursuing a country-specific content threshold, but have not stated whether they will seek congressional approval for any modifications. In light of Canada's retaliatory tariff on $20 billion of U.S. goods, which took effect on September 8, all eyes are on USMCA ahead of upcoming negotiations in Washington.
Access the Legis1 platform for comprehensive political news, data, and insights.
Spot something wrong? Report an issue with this article