'Major changes' expected on the U.S automotive supply chain with U.S. Mexico Canada Agreement

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By . Jan 11, 2019, 6:36AM

An agreement between the U.S., Mexico and Canada regarding proposed tariffs on Chinese products in the automotive industry looks set to force ‘major changes’ in a number of leading supply chains.

The U.S. Mexico Canada Agreement (USMCA) is a trade deal that will enable more than USD $1.2trn in trade and as part of the deal, automobiles must have 75% of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs.

It is this particular detail that has seen around 41%% of U.S based automotive executives anticipate an increase in production costs by 10% in the next three years, with 26% of them believing it could be more than a 25% increase or more.

These are the results of a LevaData survey which looked at 100 U.s based automotive executives to examine the impact of the USMCA on the automotive supply chain.
 

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The results show that around 58% of those surveyed agree that the increases in production will result in higher costs for consumers. This has a knock-on effect on the supply chain, with 36% of executives planning to renegotiate part supply deals to pass costs on to suppliers and 35% looking for cost savings within the production process.

Given the demand for a large share of automobile components to be manufactured in Mexico the U.S or Canada, this has seen pressure to source components from suppliers near North American assembly plants shit dramatically. 61% predict that suppliers based near assembly plants will be favoured while 78% believe that fining North American suppliers or identifying alternate sup[pliers is going to be a near-term priority for their supply chain.

“The adoption of USMCA, threats of tariffs on Chinese goods, and concerns about the security of tech components made in China are going to be major concerns for the automotive industry in the coming years,” explained Rajesh Kalidindi, founder and CEO of LevaData. “Auto makers will require a better upstream assessment of geopolitical risk considerations going forward. Knowing where tariffs might be applied and how they could impact cost and supply will be increasingly important — and virtually impossible to manage in Excel.”