Auto Sector Needs 'an Army of Folks' to Understand USMCA Rules
Given the prohibitively high tariff levels placed on China, and the uncertainty surrounding reciprocal tariffs on other countries, USMCA-qualifying goods from Canada and Mexico are advantageous options for importers, according to compliance experts speaking at an Automotive Industry Action Group event on April 9.
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Karen Kenney, a supply chain and compliance executive from K2 Trade Solutions, said that while the Trump administration "came out early and strong against Canada and Mexico," in the opening salvos of President Donald Trump's tariff bonanza, "now they clearly have the edge." If you take into account the tariff rates on China and the exemption from duties for USMCA-qualifying goods, "there's definitely a significant advantage to sourcing products from North America, from Canada and Mexico," she said.
For importers to take advantage of this, and route supply chains through the region, she said that it is critical to "make sure that your USMCA-qualifying processes are really strong." She recommended that companies have "an army of folks inside your organization that know how this stuff works." She said that since "USMCA production is such a big advantage now," companies "really don't want to miss out on any opportunities" to find goods at a lower rate.
Isabelle Vermeersch, CEO of Centipid, agreed, saying that the current regulatory environment is "overwhelming for people who are already in compliance." She emphasized that the most important part of compliance is understanding the Harmonized Tariff Schedule for the goods imported because "now, with all those tariffs, suddenly [companies are] realizing, well, maybe we did not classify things in the right way."
Kenney said that she expects rates on non-qualifying USMCA goods to potentially fall from its current 25% rate, saying that the executive order contained a note that "if, in the future, the orders against Canada and Mexico are terminated or suspended, then the rate on non-qualifying USMCA goods will go down from 25% to 12% and USMCA goods will not be subject to any reciprocal tariffs." She said that she thinks this may be "a hint that we may see that happen in the future."
She noted that while USMCA-compliant automobile parts remain tariff-free "until CBP has a process to apply the new tariff only to the non-U.S. content," based on her experience with "similar language and executive orders at CBP," that it's taking CBP "anywhere from like 30 to 45 days to make this happen." She said that she would "be prepared for this sooner rather than later."
She also emphasized the heightened scrutiny around steel and aluminum products and their derivatives, saying that the executive order "allows for an expansion of the parts covered under these tariffs, and what we've seen on the steel and aluminum tariffs is that there have already been items added to that list. So I think you want to anticipate that there will likely be additional parts added to the list over time."
Another trouble spot for importers is de minimis shipments. Kenney said that many people have the impression that the executive order ending de minimis will only impact companies like Shein and Temu, but that "if you are importing from China, it is highly likely that you are bringing in small packages, samples, prototypes, production test runs. All of those are subject to this new ban." That means that any shipments companies are ordering through the mail are now subject to tariffs and "full duties must be paid on those packages, and formal entries have to be filed for every one of them." This will significantly impact smaller firms which may not have a compliance or regulatory section because "the process is going to be much more complicated."
She said that companies need to develop a focus on compliance and make sure that they have paperwork for all stages of production and importation since "the brokers are in a really tough spot right now." Due to the new tariffs, she said that CBP's "software providers can't keep up with it, CBP space system cannot edit for all of these additional duties." This means that companies need to "double check, because CBP has said that it is your responsibility to make sure the proper duties are paid, even though their systems can't validate it, believe it or not."
For importers who are struggling with "the lack of certainty over what might happen" due to the "uncertainty around tariffs," Kenney offered two pieces of advice: one, "form a strategic bond with your customs broker," and two, "check your bond." She said that companies need a "broker that's got really good information about trade policy and duties and how they work, and you want to make sure they've got really good systems" so that they know they've filed correctly. Because of the high levels of tariffs, she said that "there is a good chance that your bonds may become insufficient, because the duties are rising so substantially, and it may take longer to increase bond amounts or get a new bond."
Diversifying supply chains is also a good idea, she said, and "you want to make sure your vendors are certifying that the information they're giving you is accurate. I would make sure you get that in writing."
Finally, she said that if she were an importer, she would not "be spending $1 of my own money right now on assets anywhere in the world, until the trade policy landscape is a little bit more clear, at least. So I'd be leveraging the assets of my service providers ... and brokers, until ... things settle down, and hopefully they will soon."