Mexico has solidified its position as a leading supplier of auto parts to the United States, accounting for 42.5% of total imports in the first two months 2024, up from 38.2% six years ago, according to data from the United States Department of Commerce.
In addition to Mexico’s performance, with record breaking exports, Canada experienced a 16.8% growth in auto part exports to the United States in the first two months of 2024, while China witnessed a 19.2% decline in its shipments to the same market.
The implementation of the USMCA has brought about changes in the automotive sector’s landscape. The agreement’s stricter North American content requirements, known as rules of origin, have reshaped trade dynamics. Mexico’s recent performance in auto part exports underscores the impact of these regulations, with shipments totaling US$13.5 billion in the first two months of 2024, marking a 41.1% increase compared to the same period in 2018.
“The growth (of Mexico) remains very strong. We’re just one step away; we’ve recently surpassed Germany to secure the fourth position. Japan is facing challenges, but we’re growing considerably, and Japan is shrinking, so we’re in a competitive position to aim for the third spot in the coming years”, said Francisco González, President, National Autoparts Industry (INA).
USMCA’s rules of origin have been subject to interpretation disputes among the member countries. While the United States advocated for a more stringent approach to calculate North American content, Mexico and Canada argued for a more flexible interpretation to assist North American producers in meeting content requirements.
The USMCA also mandates an increase in the Regional Value Content (RVC) from 62.5% under NAFTA to 75%, with a gradual growth to this threshold by 2023. The agreement also introduces wage requirements stipulating that 40 to 45% of automobile content must be produced by workers earning at least $16 per hour.
Despite these regulatory shifts, the full impact of the rules of origin may not be apparent until the agreement is fully implemented in 2027 or later, according to the US International Trade Commission (USITC).
Mexico’s automotive industry’s robust performance extends beyond exports, with domestic production reaching record levels in January 2024. The sector reported a 9.14% growth compared to January 2023 and a significant increase of 29.2% compared to pre-pandemic levels in 2019. This growth is attributed to nearshoring initiatives, which have expanded manufacturing operations to states traditionally not associated with the automotive industry.
“Another factor that will push Mexico to become a major player in automotive supply is electromobility, because more green cars are already being manufactured, and having safer supply and logistics in North America makes Mexico more attractive”, added González.
Source: Mexico Business