UAW calls for higher tariffs on vehicles, auto parts amid USMCA concerns

WASHINGTON — A UAW official on Wednesday called on the Biden administration to raise tariffs on imported light-duty vehicles and auto parts over concerns about the industry's compliance with the USMCA.

The U.S. imposes a 25 percent tariff on light trucks and a 2.5 percent tariff on imported passenger vehicles and parts from countries with most-favored status, a designation that provides preferential treatment to some international trade partners.

However, the UAW argues the tariff isn't strict enough to incentivize auto companies to comply with the United States-Mexico-Canada Agreement and prevent Chinese companies from evading other duties and gaining access to the U.S. auto market through Mexico.

"If we want greater adherence to the USMCA's 'rules of origin' provisions, the consequences for noncompliance [have] to be greater than 2.5 percent," Jason Wade, top administrative assistant to UAW President Shawn Fain, told officials with the Office of the U.S. Trade Representative and the Interagency Committee on Trade in Automotive Goods.

Wade's remarks come as the trade office conducts its second of five biennial reviews of the USMCA. The agency is expected to submit to Congress the results of its review no later than July 1.

As part of the review process, the trade office requested comments on the enforcement of the rules of origin and whether they remain effective amid the industry's transition to electric vehicles and other advancements in technology.

In comments submitted Jan. 17 to U.S. Trade Representative Katherine Tai, the UAW said the trade deal "does not go far enough" to rebalance North American trade and that the 2.5 percent tariff is "out of step with the rest of the world."

To be sure, vehicles imported into the U.S. from China face a much steeper tariff of 27.5 percent.

However, the UAW argues the 2.5 percent tariff could encourage Chinese or other foreign investment in the auto parts and vehicle manufacturing and assembly sector in Mexico, especially if a company is looking to avoid paying the higher tariff.

"We have to make it so the consequences of not following the rules of origin underneath the USMCA is not considered a minor infraction," Wade said at the public hearing.

Chinese companies investing in Mexico, he added, "will take the infrastructure and ecosystem that's been developed over the last 25 years and just pay the fee and have access to the U.S. market."

A trade office spokesperson confirmed to Automotive News that the office had received the UAW's comments but declined to comment further.

Matt Blunt, president of the American Automotive Policy Council, which represents Ford Motor Co., General Motors and Stellantis, said the trade deal is "working as intended."

"Prior to the USMCA and the [Inflation Reduction Act], the trend in North American trade was a steadily growing level of imports from Mexico and a growing trade deficit with our North American trade partners," Blunt said at the hearing. "However, since the USMCA was implemented, the U.S. automotive trade deficit has been relatively flat, and this represents an important, new and positive trend."

Still, his group and other industry trade associations are anxiously waiting to see how the Biden administration will respond to a dispute settlement panel's decision to side with Canada and Mexico. The conflict centered on the U.S.'s stricter interpretation of the trade deal's vehicle content rules.

Meanwhile, the UAW warned that Inflation Reduction Act provisions — namely, tax credits for electric vehicles — could erode the intent of the USMCA's rules of origin, which require more vehicle content to be made in North America and a significant portion of that content to be made with high-wage labor.

The tax credit for new EV purchases known as Section 30D requires vehicles to be assembled in North America but not necessarily be compliant with USMCA rules, the union argues. That conundrum could be exacerbated by the law's commercial clean vehicle credit known as Section 45W, which does not have restrictions on where an EV is made and potentially allows consumers to get a $7,500 incentive if they lease an eligible vehicle..

"You could have a vehicle that doesn't satisfy rules of origin having that tariff treatment supplemented by a $7,500 30D tax credit or a 45W tax credit for a lease," he said. "We want to have everything kind of pointing in the same direction so we can ensure that as much of the supply chain is domestically manufactured and anchored in this country."