Stricter rules of origin won’t help Michigan’s auto workers 

In stump speeches in Michigan over the last few weeks, both presidential candidates made big promises to auto workers about U.S. trade policy. Their proposals will do more harm than good.  

Vice President Kamala Harris blamed the US-Mexico-Canada Agreement (USMCA) for what ails the industry, arguing that “it was Trump’s trade deal that made it far too easy” to outsource American jobs. 

This was a veiled swipe at the pact’s rules of origin, which Harris might want to revise when USMCA comes up for renewal in July 2026. This would be a big mistake. 

Former President Donald Trump told a town hall “If I don’t win, you will have no auto industry within two to three years,” and vowed to use more tariffs to right the ship. But more tariffs will raise production costs, making firms less eager to comply with USMCA’s rules of origin. Trump had originally wanted more onerous rules of origin, leaving little doubt he would also look to rewrite them in 2026.  

To qualify for USMCA’s zero tariff treatment, cars and light trucks produced in Canada and Mexico must have a regional value content of 75 percent (70 percent for heavy trucks). This is up from 62.5 percent under the North American Free Trade Agreement, USMCA’s predecessor, but shy of the 85 percent Trump had proposed. 

USMCA also requires that 40-45 percent of inputs be made by high-wage labor and 70 percent of the steel and aluminum used be sourced from North America. 

These rules of origin are supposed to help boost investment in U.S. manufacturing. They also prevent transshipments from non-USMA countries. 

The House Select Committee on China has warned, for example, that Chinese firms are seeking to “take advantage of preferential access to the U.S. market through our free trade agreements and circumvent any [China]-specific tariffs.” But making these rules more stringent could backfire on both counts. 

The United States International Trade Commission found that, through 2022, there were “few signs” that USMCA’s rules of origin had led to changes in production, trade, employment and investment or competitiveness. As for GDP and aggregate employment, their effect was estimated to be “less than 0.01 percent.” The rules of origin won’t be fully implemented until 2027, but the U.S. International Trade Commission offered several reasons to suspect things could get worse.

Most tellingly, there’s evidence that auto firms and suppliers are choosing to forgo USMCA’s preferential treatment and export to the U.S. under World Trade Organization rules. This is because USMCA’s zero-tariff isn’t worth incurring the cost of rejigging supply chains to meet the rules of origin. 

Since the U.S.’s most favored-nation car tariff is 2.5 percent, the concern has long been that USMCA’s rules of origin would just lead Canadian and Mexican companies to export to the U.S. under the WTO tariff rate. That’s exactly what’s happening. 

For example, the U.S. International Trade Commission found that imports from Canada and Medico paying the U.S. most-favored-nation rate “increased significantly” after USMCA replaced NAFTA. The Office of the U.S. Trade Representative observed this same trend, stating that the “evidence suggests that suppliers are not attempting to claim USMCA preference for a growing share of automotive parts trade.” 

Tariffs have added to the problem. The U.S. International Trade Commission noted that the China tariffs, and the steel and aluminum ones, have raised production costs, making it less attractive for companies to meet these rules of origin to take advantage of USMCA’s preferential treatment. 

It gets worse. The U.S., Canada and Mexico disagree on how to audit regional value content for “core parts” like engines and transmissions, for example. Mexico and Canada challenged the U.S.’s methodology, and in 2023 a USMCA panel ruled in their favor. The U.S. says it won’t comply with the ruling because this would result in 10-20 percent more non-North American content. 

Yet U.S. non-compliance is casting a dark shadow. As the U.S. Trade Representative’s Office conceded in this year’s biennial report on autos trade under USMCA, the American Automotive Policy Council, the Canadian Motor Vehicle Association and global automakers have called for negotiations to reduce this uncertainty. 

The United Auto Workers favors the U.S. methodology and wants a higher most favored nation tariff to coax companies to meet USMCA’s rules of origin. This latter effort would require the U.S. to compensate impacted countries, meaning that any proposal along these lines is pure fantasy. 

More onerous rules of origin could also undermine Harris’s push for electric vehicles, which have many fewer and different core parts. Without engines and transmissions, domestic producers may be hard-pressed to meet the 75 percent regional value content. 

Batteries, even if they could be sourced in North America, may not make up the deficit. USMCA’s current rules of origin, let alone more stringent ones, won’t help reshore electric vehicle production. On the contrary, they could trigger “inversions,” pushing U.S. firms offshore. 

Michigan’s auto workers deserve better than false promises. More onerous rules of origin, with new tariffs, will cause chaos across North American supply chains, and come at the expense of U.S. jobs. 

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University.