The automotive industry in Mexico: between the new United States-Mexico-Canada free trade agreement and the impact of the covid19 crisis

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The automotive industry in Mexico: between the new United States-Mexico-Canada free trade agreement and the impact of the COVID19 crisis

The automotive industry is in a process of restructuring and change that include: the geographical relocation of production, digitalization, reshaping of production chains, and product innovation that tend to be connected, autonomous, electric and shared (ACES), all this is affected by the COVID 19 crisis. Within this dynamic, the automakers in the United States of America, the United Mexican States, and Canada
(USMCA) region are implementing several changes as a result of the new treaty enactment which came into effect on July 1, 2020. The treaty seeks, among other things: to prevent the relocation of plants outside the United States and to promote growth of companies and jobs in the sector within the United States and Canada. The Office of the United States Trade Representative (USTR) (2019) projected to promote a $ 34 billion investment resulting from the USMCA trade agreement in the coming years.
This work analyses consequences produced by substituting NAFTA by USMCA treaties: specifically the effects on the automobile industry in México and the actions taken by carmakers in order to adjust production to the new rules, all this under the COVID19 crisis impact. The new treaty considerably increased the regional content required in cars, trucks and parts and introduced an innovative rule for labor, intended to support better-paying jobs, but restricting the participation of Mexican labor in production. In addition, the agreement introduces a process for evaluation of the steel, and aluminum used by carmakers: it stipulates that 70% of the steel in a car has to be purchased in the region to qualify for the duty-free treatment. It is postulated that the new rules may slow down the growth rate of automobiles in Mexico, while at the same time suppliers will have opportunities for import substitutions. Also, German and Asian carmakers producing in Mexico were the most affected by the new rules of origin and they are forced to make several changes in product spectrum range. All these changes have been slowed down by the COVID19 crisis that closed factories for several months and decreased production in a heterogeneous pattern.