In 2023, 40.6% of the US’s exports of auto parts were destined for Mexico, amounting to $36.309 billion, showing a year-on-year growth of 9.9%. This dynamic trend occurs within the context of the new rules of origin established by the USMCA.
Mexico emerged as the top destination for US auto parts exports in 2023, with purchases totaling $36.309 billion, according to data from the Department of Commerce.
These shipments grew at an annual rate of 9.9%, reaching record highs and capturing a 40.6% share of total US automotive parts exports worldwide.
Mexico displaced Canada as the primary market for US auto parts exports in 2018, the year when the US initiated a trade war with China.
Mexico’s share of these US exports rose from 34.7% in 2017 to 40.6% in 2023, while Canada’s share decreased from 36.4% to 34.9%, respectively.
During this period, these three countries modified their automotive rules of origin in their intra-regional trade following the entry into force of the USMCA in July 2020.
Rules of origin refer to the agreed criteria in a free trade agreement to determine when a good is considered originating (based on its regional content level) to enjoy tariff preferences.
Generally, these rules aim to ensure that the benefits of the agreement are granted to goods produced mainly by a member country (and therefore subject to all its commitments) rather than goods manufactured totally or partially in other countries.
Although these regulations have fostered greater integration among the three North American nations, the growth in the trade of auto parts has been most dynamic between Mexico and the United States.
Conversely, Mexico and Canada were the top two suppliers of auto parts to the US market in 2023, with respective amounts of $80.150 billion and $19.716 billion.
As a result, Mexico’s coverage of total US auto parts imports rose from 38% in 2017 to 42.6% in 2023, while Canada’s relative coverage decreased from 10.9% to 10.5%, respectively.
Globally, China, Europe, North America, Japan, India, and South Korea represent the largest automobile production markets in the world, accounting for approximately 89% of vehicles produced on the planet.
China’s share of around 32% of global production led all markets in 2023, followed by the United States and Japan, with 11% and 10% shares, respectively.
Specifically, local demand for vehicles in China, India, and certain markets outside North America and Western Europe has increased over time.
According to the auto parts company Magna International, this growing local demand has helped boost the local automotive industry in these countries and has attracted investments in automobile production from North American, European, and Asian manufacturers, through independent investments and/or joint ventures with local partners.
Stricter rules on regional content
Replacing NAFTA, the USMCA established stricter rules of origin for duty-free automobile trade in North America.
A dispute settlement case arose when Mexico and Canada challenged the US interpretation of North American content requirements related to automotive rules of origin under the USMCA.
The US argued for a stricter approach to calculating North American content, particularly concerning major components (e.g., engines and transmissions). Mexico and Canada advocated for a more flexible interpretation to help North American producers meet USMCA content requirements, and they won this case in December 2022.
roberto.morales@eleconomista.mx