In comments to the U.S. Trade Representative ahead of next summer’s joint review, we lay out what needs to be renegotiated in the trade agreement.
Next summer, when the United States sits down with representatives of Canada and Mexico for a statutory joint review of the United States-Mexico-Canada Agreement (USMCA), it must insist on closing loopholes in the deal that allow countries not party to the agreement to benefit from it.
If the USMCA can’t be improved in that way, the U.S. should withhold support for extending the agreement for the deal’s outlined 16-year term, and continue negotiations until those loopholes are closed.
That’s the takeaway from the detailed recommendations the Alliance for American Manufacturing (AAM) has submitted to the United States Trade Representative ahead of a public comment hearing this month, as it prepares its negotiating positions for the summer. Because, as we argued here on the blog a few weeks ago, what’s the point of signing a trade agreement if its rules undercut our workers and companies?
Our main point of contention with the USMCA is China’s exploitation of the deal through one of its signatories: Mexico. The agreement was designed with bipartisan cooperation to strengthen North American production and supply chains and ensure the deal’s benefits accrue to workers on this continent. Since its implementation, however, it’s opened a significant backdoor through Mexico for Chinese goods that evade U.S. tariffs, circumvent U.S. trade enforcement measures, and exploit the deal’s rules of origin (ROO) — allowing lots of Chinese-made content to enter the U.S. market.
The trail of evidence strongly suggests this is the case. From our comments:
Between 2011 and 2021, Chinese foreign direct investment (FDI) in Mexico rose from $38 million to $386 million, making China the fastest-growing source of foreign investment in Mexico. Since USMCA entered into force, this trend has only accelerated. Chinese greenfield FDI capital expenditures increased from $267 million in 2018 to $5.6 billion in 2023, with $3.5 billion directed to automotive manufacturing alone. In 2023, Chinese firms announced $12.6 billion in planned investments, and in the first quarter of 2024 alone, a record 41 new manufacturing and logistics projects had been launched and concentrated in large part near the U.S.-Mexico border. When accounting for offshore investment channels such as Hong Kong-based intermediaries, total Chinese FDI in Mexico is far in excess of the official statistics from Mexico’s Secretariat of Economy and China’s Ministry of Commerce.
These trends represent a direct and escalating threat to U.S. industrial and supply chain capacity, employment, and national security. As AAM warned in its 2024 report, “On a Collision Course: China’s Existential Threat to America’s Auto Industry and its Route Through Mexico,” a potential surge of Chinese vehicles entering the U.S. market through Mexico constitutes an “extinction-level event” for the American auto industry and its workforce.
This is a sample of the case we lay out for improving the USMCA so that it will better protect North American workers and production capacity – and withholding support for the agreement if it isn’t improved. But what are the specific issues AAM wants addressed?
Improved rules of origin that close loopholes and boost regional content.
We write:
Too often our trade policies have overlooked the components, parts, and upstream raw materials necessary to produce a given product. Prioritizing only end products that are assembled or manufactured in the United States from all or mostly imported products is not a sound strategy to solve the problems that have plagued our country in recent years, nor does such a strategy serve our economic or national security interests. In fact, such approaches will only set us up for repeated failure.
Restrictions on China and other countries of concern.
We write:
AAM’s aforementioned report, “On A Collision Course: China’s Existential Threat to America’s Auto Industry and its Route Through Mexico,” details the threat posed by Chinese automakers, whose long-desired penetration of the U.S. market has been largely held at bay by tariffs levied on Chinese-made vehicles. Existing tariffs have staved off a direct attack on the U.S. auto industry, which is central both to our economic and national security. But China’s predatory trade practices know no bounds, and the best approach is to impose restrictions on China’s state-owned and state-backed companies from benefiting from USMCA directly or indirectly. Unless decisive action is taken, a looming surge of Chinese autos into the U.S. market would be an extinction-level event for the domestic auto sector, its workers, and our vast industrial supply chain that is critical to U.S. economic and national security.
And …
Aligned trade policy to confront non-market distortions, particularly from China.
We write:
(This is a) timely opportunity in the USMCA joint review to confront non-market distortions, particularly from China, to safeguard North American manufacturing and supply chain resilience. Canada and Mexico should accelerate their ongoing efforts to align their trade policies with U.S. measures on tariffs, China engagement, and supply chains.
Canada and Mexico have lagged behind the United States in countering China’s predatory practices, allowing dumped and subsidized imports to penetrate North American markets, eroding competitiveness and reshoring efforts. While both countries have begun to impose tariffs on products like steel and electric vehicles from China, these steps remain insufficient and uncoordinated.
You can read all of AAM’s comments, replete with footnotes, here.