Supply Chain Nearshoring in Response to Regional Value Content Requirements.

This article examines how the tightening of rules of origin (ROOs), specifically the regional value content (RVC) requirements under the renegotiated U.S.-Mexico-Canada Agreement (USMCA), influences global sourcing decisions of U.S. automotive firms. Empirical analysis using both aggregate national import data and detailed firm-product-level transaction data shows that U.S. automotive manufacturers significantly increase their imports of automotive products from Mexico and Canada, indicating a nearshoring trend in response to stricter RVC rules. This nearshoring is most pronounced for less complex complementary automotive parts rather than core or principal components, suggesting firms adopt a gradual strategy focusing on lower-cost supply chain adjustments. Additionally, firms with higher property, plant, and equipment (PPE) and leverage ratios exhibit stronger nearshoring responses, which is associated with improved inventory performance but also increased costs and reduced gross margins. The findings highlight that while trade policies like USMCA effectively encourage regional sourcing, firms' strategic responses may not fully align with policymakers' intentions to deepen regional production of critical automotive components.