Politics

Automakers to take a nearly $3 billion hit under USMCA, new report says

Key Points
  • The Congressional Budget Office expects the new USMCA trade deal to cost automakers nearly $3 billion over the next ten years
  • The new guidelines set a higher bar for cars and auto parts that can be imported duty-free, based on the origin of their parts and labor rules of the countries in which they were made.
  • While the U.S would likely replace some of its duty-free imports with its own production, it will still need to rely on more expensive imports, the report said.
An employee drives a completed Chevrolet Aveo automobile, a division of General Motors Co. (GM), off the production line at the GAZ Group plant in Niznhy Novgorod, Russia.
Alexander Zemlianichenko | Bloomberg | Getty Images

The recently negotiated replacement for NAFTA will cost automakers nearly $3 billion over the next ten years, according to budget projections made by the Congressional Budget Office.

A House committee cleared the new North American trade deal on Tuesday, setting up approval in the full chamber this week.

The new auto guidelines set a higher bar for cars and auto parts that can be imported duty-free, based on the origin of their parts and labor rules of the countries in which they were made. As a result, writes the CBO, fewer companies in the USMCA partnership will qualify for duty-free import status.

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According to the new rules, 75% of car or auto parts need to have originated in a country partnership. Under NAFTA's rules, the floor was 62.5%. Additionally, 70% of a car's steel and aluminum purchases must be made in North America.

The new rules also require that a certain percentage of vehicles imported duty-free must be made in a place where employees make an average of $16 per hour. While the U.S would likely replace some of its duty-free imports with its own production, it will still need to rely on more expensive imports, the report said.

The agency predicts that the U.S would collect $2.79 billion in tariffs from those imports, which would mean automakers are paying that much more.

Reuters first reported news of the CBO report and its impact on the auto industry.

CNBC's Jacob Pramuk contributed to this report.