Five Hot Button Trade Issues for the Electric Mobility Industry in 2024
Download a PDF of the full 2024 analysis here.
From Washington, DC, 2024 will see final rulemaking in critical aspects of the supply chain, for electric vehicles (EV), as well as traditional internal combustion engine (ICE) vehicles. This alert recognizes the continued use of certain traditional components within the EV vehicle (e.g. axles, steering systems, etc.), and new technologies used in both EV and ICE vehicles, as well as chargers and other products within the Electric Mobility supply chain.
In a year of fast-paced technology change with rulemaking struggling to keep up, companies need to be nimble. In this environment of “hurry up, now slow down,” manufacturers of both ICE and EV products are striving to find opportunities to stay ahead of the curve and do so smartly.
For these reasons, we start this year’s edition with an updated trade discussion of “country of origin” and tariff classification. Why? The common threads underlying the current and forthcoming rules impacting the supply chain are origin and classification. These are key determinative factors that will impact many products, especially automotive goods, that are imported into the United States.
‘Put another way, classification and origin are the gateway issues for the complex legal analysis required for interpreting and applying the new laws impacting cross border trade, such as such as the Section 301 China tariffs, the USMCA, and the Inflation Reduction Act of 2022 (IRA).’
In today’s tangle of trade rules, adopting a strategic approach to how these rules have been and are legally interpreted and applied can mean the difference between a minimal tariff and double-digit duties.
Lack of awareness or misunderstanding of recent decisions from Washington will result in significant disruptions of supply chains and trigger intrusive audits. At their worst, they can result in a ban of certain shipments from offshore. They are not new concepts in US trade regulation. But the focus on them by regulatory agencies and their importance today will be amplified in 2024 by Washington’s agenda and geopolitics.
This annual preview provides an executive-level “look ahead” to emphasize due diligence for companies, from small start-ups to multinational operations and the companies in between. It offers high-level insight important to many manufacturing strategies. Our intent is to share our critical thinking based on our deep-reach understanding of the industry – beyond the headlines.
“This preview has been designed with the busy executive in mind – to lay out what to expect in 2024 and when, and to explain how these are important.”
—Birgit Matthiesen, Director of North American Manufacturing
Where 2023 Left Off?
At the beginning of 2023, a report published by the International Energy Association on progress made by the electrification of vehicles stated that “market trends and policy efforts in major car markets are supporting a bright outlook for EV sales” and predicted that “the United States doubles its market share to 20% by the end of the decade as recent policy announcements drive demand.” For light and heavy vehicles, including commercial fleet vehicles, it has been indicated that the outlook is even brighter.
Throughout the past year, the US vehicle and parts industry made news of expansion, from greenfield investments to corporate restructuring. By all accounts, that growth is expected to continue through 2024. New companies, new products, and new customers have come online at an exciting pace.
And so has the growth in the competitive landscape in the US market.
Amid this ever-evolving environment, our team was invited to speak before corporate executives throughout 2023 at industry conferences in Sacramento, Novi, and Toronto. At each of these events, we heard a recurring concern — how to compete in this new marketplace, one that has benefited from public policy incentives but is also constrained by US trade regulations that are bewildering and complex, especially for downstream sectors such as those procuring critical minerals and other production inputs.
What To Look For In 2024?
In this annual Look Ahead, our team gathered once again to bring our readers “hot button” US trade developments from Washington.
Our goal is simple — give our readers an update on a number of initiatives already in place and explain other developments that, taken holistically and cumulatively, will spell competitive advantages for busy executives.
The timing of this publication is equally important for our readers. First, US voters go to the polls in November. Throughout the year, campaign speeches will offer wide ranging promises. US trade policy will not be immune from political theatre.
Second, for North American operations, the all-important United States-Mexico-Canada Agreement (USMCA) will enter into its fifth year on July 1, 2024. We understand that the USMCA has not garnered the headlines of other US trade initiatives, but we urge readers to consider the longer-term opportunities it offers, given that negotiators included a reset provision every six years.
The winner of the 2024 presidential election will get to set trade policy in 2025 and beyond and will establish priorities for changes in the USMCA for review with Ottawa and Mexico City. As we inch closer to the six-year review of the USMCA, 2024 will not only continue current US trade strategy, but also introduce new initiatives and set the stage for changes in a pact that has provided North American operations with a unique competitive advantage.
Of course, while evaluating the USMCA, the tangle of US trade rules also means considering the impact from any modifications to the Section 301 China tariffs, additional guidance on the IRA, and other trade measures or government programs that will be further developed in 2024 affecting the North American supply chain.
How We Can Help
As you read this alert, we ask that you keep in mind the importance of 2024 and 2025 and what these mean for your company’s US market interests. We continue to believe that the USMCA, albeit non-headline making, is a powerful instrument to not only reduce costs but provides the North American EV ecosystem with a competitive advantage.
In many of our alerts in recent months, we have explained developments in each of these trade initiatives. These have been prepared with a deep understanding of the industry and their consequences for corporate strategy.
We are often called upon for legal advice and strategic counseling by company executives. Our strength lies in our ability to identify risk exposure and cost-saving opportunities, working with company divisions to weigh both.
In presentations before corporate audiences, we describe the trade environment as “a tangle” of complicated rules impacting the supply chain. 2024 and beyond can be expected to make that tangle more tangled.
For our team, Smart in Your World is not simply a tag line.
To read previous Hot Button Trade Issues click 2021, 2022, and 2023.
Gateway Customs Issue: US Tariff Classifications for the Automotive Supply Chain
We chose to include a discussion of this important but lesser understood policy area because of the likelihood of their impact — both adverse and positive — on many companies’ procurement and production plans.
US Customs and Border Protection (CBP) is tasked with the application and enforcement of US tariff and trade regulations. Attorneys in CBP’s Office of Rules and Regulations, for example, issue binding rulings and provide guidance on the proper Harmonized Tariff Schedule (HTS) classification of imported products. These classifications can, in turn, determine a tariff ad valorem rate and the application of US tariffs or, in the case of free trade agreements (FTAs), preferential tariffs. They also determine the application of punitive special tariffs, such as US 301 tariffs.
Section 301 Tariffs: Not Going Away Any Time Soon
For readers who may not be fully apprised of what these tariffs are, we offer a short summary.
In August 2017, the Office of the US Trade Representative (USTR) initiated a trade investigation under Section 301 of the Trade Act of 1974. Its purpose was to address unreasonable or discriminatory practices from Beijing adversely affecting US economic interests. That investigation led to double-digit tariffs on a wide swath of imports into the United States from China, many of which that are important to US production of electric vehicle (EV) and internal combustion engine (ICE) products.
USMCA Year Four Into Year Five
The United States-Mexico-Canada Agreement (USMCA), in many ways, can be a game changer for many automotive companies. First and foremost, eligibility of products deemed USMCA compliant benefit from zero US import tariffs.
When compared to general tariffs (MFN) of typically 2.5% and higher, the USMCA preferential rates contribute to cost reduction priorities for executives. However, the USMCA qualification rules for most automotive goods are determined by a system based on “core,” “principal,” and “complementary” parts that are not found in any other trade agreement and for which the US regulatory agencies have provided little to no guidance.
US Supply Chain Challenge for Critical Minerals
Critical minerals — the lithium, graphite, cobalt, manganese, and other key minerals that are later processed into battery-grade chemicals — represent the essential ingredients in any electric vehicle (EV) battery.
In the new clean energy sector, they are a resource as valuable and limited as oil, and the control and sourcing of these critical minerals have become a national security concern for Washington.
Beyond the USMCA and the IRA: Speed Bumps, Fast Lanes
Aluminum is clearly an important material for the industry as there is an objective for making vehicles as light as possible. Aluminum issues may start with Tariff Classification and Country of Origin questions, and can lead to more complex issues, including Section 232 tariffs or other high-tariff trade barriers.
