The U.S. automotive industry is entering a new phase of uncertainty as the USMCA trade agreement is not expected to be extended by Wednesday. The deadline triggers an annual review process or potential expiration by 2036 if no deal is reached. The United States-Mexico-Canada Agreement, established during President Donald Trump's first term in 2020, governs roughly $2 trillion annually in goods and services between the three countries. The auto industry represented about 18% of America's trading with its neighboring countries last year, according to industry data. The administration has soured on the deal, with U.S. officials stating they want additional domestic investment and benefits. Automakers are concerned that reopening the deal could create trade uncertainty leading to lower investments and fewer jobs.
USMCA Review Process Opens After Wednesday Deadline
The United States, Mexico and Canada could have agreed to a 16-year extension by Wednesday, but are not expected to meet that deadline. That opens up an annual review process instead. U.S. Trade Representative Jamieson Greer in May said the U.S. wants to strengthen North American rules of origin "in a way that enhances U.S. content in these goods" to boost domestic manufacturing.
Diego Marroquín Bitar, a fellow at the Washington, D.C.-based think tank Center for Strategic and International Studies, said the Trump administration's public discussions have been wide-ranging, touching on non-trade issues such as immigration, crime and other connections. "Everything is on the table. Not just the trade issues," Bitar said. "The more things on the table, the longer it takes to negotiate and the more uncertainty it will generate."
Industry Groups Support Trilateral Agreement Extension
Automakers operating in the U.S. would like the deal to remain an agreement between the three countries that "strengthens, rather than fragments, this critical economic foundation" for North American trade, according to a letter to Greer from leaders of the largest automotive trade groups in the U.S. "We support U.S.-Mexico bilateral engagement and encourage trilateral discussions to support an efficient and effective review that will ultimately extend USMCA as a trilateral agreement," the organizations that represent the vast majority of U.S. automakers, suppliers and dealers wrote May 7.
The trade groups have argued that companies have spent billions of dollars to address current USMCA standards and that many auto companies are already investing more in the U.S. USMCA has driven $182 billion in North American investment, 86% of which has been announced for the U.S., according to U.S. automotive lobbying group data.
Flavio Volpe, president of Canada's Automotive Parts Manufacturers' Association and a member of the Canadian prime minister's council on Canada-U.S. relations, said he is optimistic a deal could be hammered out by fall. "There are real issues on the table but, in my opinion, none of [those] are insurmountable," he told CNBC during a phone interview Monday.
Current Rules Require 75% Regional Value Content for Vehicles
USMCA currently requires 75% "regional value content" for passenger vehicles and light trucks be sourced from North America. The rules of origin determine what country a product comes from and which goods are eligible for preferential treatment, such as reduced tariffs or duty-free trade. There is currently no requirement to separate the parts content between what's made in the U.S. and what's made in Canada.
Roughly a dozen vehicles, including some single models, meet the current 75% threshold. None are at 80%, with the Volkswagen ID.4 all-wheel-drive Pro at 76% U.S./Canadian content topping the 2026 model year list of parts content published by the National Highway Traffic Safety Administration. S&P Global Mobility has said there are on average 20,000 parts in a vehicle when it's torn down to its nuts and bolts. Parts may originate in anywhere from 50 to 120 countries.
Trump Administration Seeks 82% Content Threshold with 50% U.S.-Made
The Trump administration reportedly wants to increase the regional value content level to 82%, with 50% of that value produced in the U.S. The new rules would require a distinction between U.S. and Canadian content, which would mean setting up new processes. "The regional value content is what people are talking about a lot, but really it's the U.S. content that's going to matter," said Mark Wakefield, a partner and global automotive market lead at consulting firm AlixPartners. "Some of these don't even really have a plan as to how to even do them, and so it's going to be a bumpy road, and a fairly expensive road."
AlixPartners estimate there's an up to 20% premium to move a product from Mexico to Canada and up to 50% increase in costs for moving some parts from China into the U.S. Automotive executives have said it would take years and billions of dollars in investments to onshore production to ensure vehicles sold in the U.S. have more American content.
Aakash Arora, an automotive expert, partner and managing director at Boston Consulting Group, noted one way to potentially boost the U.S. content could be to include the origin software, which is a growing part of new vehicles, in the rules of origin. BCG also argues that setting the standards too high could cause some companies to actually produce less in the U.S. Instead of striving to meet the standards, automakers could focus on producing vehicles with the least expensive parts outside of the U.S. to reduce the declared value of the vehicles for import to a level where paying tariffs on a less expensive product would still be financially beneficial. "In that case, we do not get additional U.S. content," Arora said.
FAQ
What is the USMCA trade agreement and when was it established?
The United States-Mexico-Canada Agreement (USMCA) is a trade deal that replaced the North American Free Trade Agreement and was established during President Donald Trump's first term in 2020. The agreement governs roughly $2 trillion annually in goods and services between the three countries, with the auto industry representing about 18% of America's trading with its neighboring countries last year.
What are the current rules of origin requirements under USMCA?
USMCA currently requires 75% "regional value content" for passenger vehicles and light trucks be sourced from North America. Roughly a dozen vehicles meet the current 75% threshold, with none at 80%. The Volkswagen ID.4 all-wheel-drive Pro at 76% U.S./Canadian content tops the 2026 model year list published by the National Highway Traffic Safety Administration. There is currently no requirement to separate the parts content between what's made in the U.S. and what's made in Canada.
What did U.S. Trade Representative Jamieson Greer say about the USMCA review in May?
U.S. Trade Representative Jamieson Greer in May said the U.S. wants to strengthen North American rules of origin "in a way that enhances U.S. content in these goods" to boost domestic manufacturing. The Trump administration reportedly wants to increase the regional value content level to 82%, with 50% of that value produced in the U.S., which would require setting up new processes to distinguish between U.S. and Canadian content.
