What Happened?

Cars built in North America under a trade deal that replaced NAFTA are still caught in a web of unresolved disputes, and American consumers and automakers could feel the effects. A Congressional Research Service report found that six years after the United States-Mexico-Canada Agreement (USMCA) took effect, the rules governing how much of a vehicle must be made in North America remain contested.

The core fight is over math. Under USMCA, 75 percent of a passenger vehicle's value must come from within North America to qualify for tariff-free trade, up from 62.5 percent under the old NAFTA deal. But the U.S. and its neighbors disagree on how to count the value of key auto parts, and a 2022 trade dispute panel ruled against the U.S. position. No resolution has been reached, and the agreement has no appeals process.

Why Does it Matter to Me?

Many U.S. auto imports from Canada and Mexico meet USMCA content rules, yet those vehicles still face tariffs on their non-U.S. components under Section 232 tariffs the Trump administration imposed in 2025. Vehicles that don't comply with USMCA face a combined tariff rate of 27.5 percent. That rate is higher than what some vehicles imported from Japan or the European Union face.

The U.S. International Trade Commission's 2025 biennial report found mixed results since USMCA took effect:

  • U.S. auto parts production increased slightly
  • U.S. vehicle production decreased
  • Section 232 tariffs on vehicles took effect in April 2025; tariffs on auto parts followed in May 2025

Higher tariffs on imported vehicles and parts can push up sticker prices for American car buyers.

Both Sides, Now

Trump administration officials have said they want to strengthen the automotive content rules during the 2026 review of the agreement. They have not stated whether they will seek congressional approval for any changes to the deal.

Canada has pushed back. The Canadian government imposed retaliatory tariffs on U.S. goods. Canada also announced a separate deal in February 2026 allowing up to 49,000 Chinese electric vehicles annually into Canada at a reduced tariff rate of 6.1 percent. Some members of Congress have introduced legislation to block Chinese-made vehicles from entering the U.S. market through Canada or Mexico, though those bills have not yet been voted on.

What Happens Next?

The USMCA is due for a formal review. Any changes to the agreement's automotive rules would require the agreement of all three countries. Whether the Trump administration will seek a congressional vote on modifications remains an open question. Until the unresolved dispute over parts valuation is settled, automakers and suppliers on all three sides of the border face uncertainty about which rules actually apply.

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