By RGG Business Journal Staff
MCALLEN, Texas — A leading economist is warning that the United States’ current multi-layered tariff structure is actively undermining the U.S.-Mexico-Canada Agreement (USMCA) and could inadvertently push automotive manufacturing out of North America.
E.J. Antoni, chief economist at the Heritage Foundation, says a flurry of overlapping import duties enacted under various trade mechanisms has created a compounding tax burden on vehicles manufactured within the USMCA framework.
The result, Antoni states, is that some vehicles produced with nearly 100 percent North American components now face higher effective tariff rates than foreign vehicles imported from overseas.
“The USMCA reduced trade barriers, strengthened North American supply chains, created more domestic manufacturing jobs, and supported wage growth,” Antoni noted, pointing to a trade relationship now valued at nearly $2 trillion annually. “But the luster of that gold standard is being dulled by today’s tariff environment.”
For regions like the Rio Grande Valley, where international bridges facilitate billions of dollars in cross-border manufacturing components daily, the logistical and financial friction caused by these duties is becoming a critical talking point.
Because the automotive sector relies on integrated, multi-stage supply chains, raw materials and sub-assemblies frequently cross between the U.S., Mexico, and Canada multiple times before final assembly. Under the current structure, import duties are applied at multiple stages of entry:
- Stage 1: Raw materials (such as bauxite, chalcopyrite, and iron ore) are imported into the U.S. and processed into usable aluminum, copper, and steel.
- Stage 2: These processed materials are exported to Mexico or Canada to be manufactured into specific auto parts, such as sheet steel, wiring, or engine block castings.
- Stage 3: The components are imported back into the U.S. to build advanced parts like transmissions or alternators.
- Stage 4: These sub-assemblies are sent back across the border for final vehicle assembly before the finished automobile is ultimately imported and sold in the U.S. market.
According to Antoni’s analysis, each border crossing triggers an accumulation of import duties, leading to an effective double-taxation scenario that drives up consumer costs.
The financial impact of these overlapping tariffs has already reverberated through the global automotive market. Automakers worldwide absorbed more than $35 billion in tariff costs over the last year. Japan’s seven largest carmakers alone reported a combined loss of $9.75 billion in operating profit during the first half of fiscal year 2025.
Rather than stimulating domestic assembly lines, the current tariff environment is incentivizing global firms to consolidate operations outside of the North American trade bloc. For example, Nissan recently announced the closure of two manufacturing plants in Mexico, shifting and consolidating that production back to its Kyushu complex in Japan.
Trade experts point out that secondary trade agreements create stark disparities. Under current U.S.-UK trade policies, up to 100,000 UK-manufactured vehicles can enter the U.S. annually under a flat 10 percent tariff with zero domestic content requirements. Consequently, a Range Rover assembled in Solihull, England, utilizing entirely foreign parts, can carry a lower effective tariff rate than a Chevy Blazer assembled in Mexico using an American-made engine and transmission.
The economic pressure on North American automotive supply chains is projected to intensify, Antoni states. He points out that the federal government has previously offset these component tariffs by issuing temporary credits to automakers who handle final assembly inside the United States. However, that vital financial cushion began shrinking on May 1 and is legally scheduled to phase out completely by April 2027. Once the credit expires, the cost advantages of sourcing components from traditional Asian supply chains will widen.
With the USMCA scheduled for its mandatory joint review this year, economists such as Antoni and industry groups are calling on Congress and federal trade representatives to codify customs duties into a streamlined, predictable framework.
Proponents of reform argue that any updated framework must guarantee that USMCA-compliant vehicles receive premier global tariff treatment, ensuring that parts built by North American workers face the lowest possible trade barriers. Additionally, analysts suggest that supply-side tax and regulatory incentives are necessary to actively encourage nearshoring along the U.S.-Mexico border, rather than relying solely on punitive import measures.
Editor’s Note: Dr. E.J. Antoni is the chief economist and the Richard Aster fellow at the Heritage Foundation, and a senior fellow at Unleash Prosperity. His latest op-ed is titled: Messed-up tariffs are hurting the carmakers they’re meant to help Click here to read his analysis in the New York Post.
