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Toyota made a huge announcement today [SEE HERE] that’s a direct outcome of the NAFTA replacement USMCA trade deal; and the new 75% rule of origin within the Auto sector.
The guiding decision here relates specifically to the construct of the USMCA (NAFTA replacement). Toyota was previously focused on multi-billion-dollar investments in Canada as they exploited the NAFTA loophole and procured component parts from Asia for North American assembly and shipment into the U.S. Market. However, when they renegotiated NAFTA and created the USMCA President Trump and USTR Lighthizer closed closed the loophole.
USMCA - Agreement - % - Automobile - Parts
The new USMCA agreement requires that 75% of automobile parts must be made in North America; and 45% must come from plants with minimum labor costs ($16/hr); or face tariffs to access the U.S. market with the finished good. As a result Toyota has to either pay a tariff to continue importing Asian component parts, or move the higher-wage component manufacturing directly into the U.S.
Obviously, Toyota chose the latter. They made the best decision for their financial plan; and the right decision for the U.S. This outcome is exactly how tariff and countervailing duty applications are supposed to work to protect U.S. workers and manufacturing.
Steel - Aluminum - Manufacturing - On-line - Result
With the increased Steel and Aluminum manufacturing coming on-line, also a result of well-placed countervailing duties, the raw material for the Toyota component group is now available in the U.S. to make the parts 100% Made in the USA.
How’d ya like them apples.
Moves - August - Right - USMCA - Details
Oddly enough we predicted these moves in August 2018 right after we learned of the USMCA details. At the 30,000 ft level, the USMCA deal positioned Mexico and Canada to retain the current multinational investments, but slowly work through a process to withdraw any advanced manufacturing investment. Through a series of sector-by-sector standards on origination the USMCA...
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