Reuters cited four informed sources, reporting that U.S. Trade Representative Grisham explicitly stated during a meeting this week in Mexico City with Mexican automotive and steel industry groups and business leaders that the Trump administration has no intention of eliminating tariffs on automobiles and steel when renegotiating the USMCA this year, adding that "tariffs will remain for the long term" and "a zero-tariff world is impossible." This means the space Mexico and Canada originally hoped to gain—through the review of the agreement—to secure tariff reductions is narrowing. The report also said the U.S. negotiating team is considering proposing even stricter rules of origin, including requiring certain key auto components to be 100% made in North America. Formal negotiations are expected to begin during the week of May 25, while the deadline for the six-year review of the agreement is July 1. This statement has dealt a significant blow to Mexico. The Mexican automotive and steel industries are highly dependent on the U.S. market, with over half of their exports going to the United States. Under the USMCA and its predecessor, NAFTA, auto and parts trade among the three countries had enjoyed zero tariffs for more than three decades. After Trump imposed tariffs on global auto imports last year citing national security concerns, Mexico’s supply chain has faced considerable pressure. Even more troubling for Mexico is that the U.S. has since negotiated lower tax rates with Japan, the EU, South Korea, and the UK—resulting in some countries’ auto exports to the U.S. facing lower tariffs than Mexico’s, further eroding Mexico’s relative advantage within the highly integrated North American supply chain.
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