The largest automotive trade agreement in history is bound to recast the industry’s rules of origin.
Introduction
As published at August 21, 2025 by the White House, the United States and the European Union have issued a joint statement establishing a framework for the final provisions of a reciprocal, fair, and balanced trade agreement. The framework covers a wide range of topics that directly involve the automotive sector, as well as key inputs and operations tied to vehicle manufacturing. Given that the U.S. and EU rank among the world’s largest vehicle producers—second only to China, which has no comparable automotive agreements with other major players—this initiative stands as the largest automotive trade agreement in the history of global manufacturing.
The language of the Framework highlights how the negotiations are intended to shape the outcome. References to reinvigorating industry and unleashing the full potential of combined economic power signal that both the United States and the European Union view the agreement as a strategic opportunity. The emphasis suggests a shared recognition that closer integration of their automotive industries will generate advantages not only in production and trade but also in strengthening their overall industrial base.
In this short article, we will examine the situations raised by the framework that directly and indirectly affect the automotive industry, from production to supply chains and critical inputs. We will also consider the directions it provides for the rules of origin, which indicate that the framework will introduce stricter and more demanding origin requirements. Finally, we will conclude by reflecting on the scale of change underway—not only through this agreement, but also through the parallel frameworks with Japan and South Korea—that are set to reshape the global automotive supply chain in profound ways.
Automotive-Relevant Topics in the Joint Statement
The agreement contains several provisions with direct implications for the automotive industry:
- Tariffs on automobiles and auto parts: A commitment to reduce U.S. tariffs, conditional on EU action on industrial goods, with an eventual cap at 15%.
- Mutual recognition of vehicle standards: Both sides intend to align and accept each other’s standards, simplifying regulatory compliance and lowering costs for automakers.
In addition, a number of areas are indirectly connected to the automotive sector, shaping its broader trade and production environment:
- Steel and aluminum trade: Measures to manage overcapacity and protect supply chains in these core automotive inputs.
- Critical and rare minerals: Central to electric vehicle (EV) batteries and advanced automotive technologies.
- Carbon Border Adjustment Mechanism (CBAM): Pricing of carbon-intensive inputs such as steel and aluminum, directly affecting auto production costs.
- Forced labor bans: Recent U.S. enforcement under the Uyghur Forced Labor Prevention Act now targets steel, copper, lithium, batteries, wiring harnesses, and electronics. For the automotive sector, this means manufacturers must demonstrate that both their core production inputs (metals and structural components) and advanced technologies (EV batteries and electrical systems) are sourced through transparent and ethical supply chains, free of forced labor.
New Standards for Rules of Origin
The Framework for the Agreement on Reciprocal Trade between the United States and the European Union highlights the negotiation of rules of origin designed to ensure that the benefits of the accord flow primarily to both partners. These provisions make clear that origin requirements will be crafted not only to regulate trade flows but also to favor industrialization within the transatlantic space. In this way, the framework links the technical design of origin rules with the broader objective of unleashing economic power, reinforcing the preliminary commitments by both sides to use industrial policy as a driver of renewed growth.
In analyzing the programmatic direction of the framework, the provision concerning steel is particularly revealing. It reflects the intention of the United States and the European Union to cooperate in ring-fencing their domestic markets from global overcapacity—implicitly addressing the challenge posed by China—while ensuring secure supply chains between themselves. This suggests that the rules of origin will likely require steel to be locally sourced, placing industrial protection and regional self-sufficiency at the core of the agreement.
A useful precedent can be found in the USMCA, which came into force in July 2020 and replaced NAFTA’s earlier approach focused mainly on regional value thresholds. Under the new rules, at least 70% of steel and aluminum used in vehicle production must originate in North America, with steel additionally subject to the “melted and poured” requirement. This marked a significant policy shift designed to strengthen regional supply chains—a direction that the U.S.–EU framework now appears poised to follow.
Conclusion
The commitments on defense procurement, energy security, critical minerals, and cybersecurity show that this Framework extends far beyond trade liberalization. It establishes a strategic partnership that integrates military cooperation, economic resilience, and technological security, thereby reinforcing the transatlantic alliance on multiple fronts.
Within this context, the automotive industry—long a core manufacturing sector for both the U.S. and EU economies—is being positioned as a central engine of industrial development between the two blocs. Rules of origin are likely to require steel to be melted and poured locally and aluminum to be processed within the region, ensuring that the growth of vehicle production directly stimulates domestic heavy industry. By anchoring automotive growth in local metals and minerals production, the Framework not only strengthens the automotive sector but also builds industrial capacity and strategic resilience across the transatlantic economy.
In this sense, the largest automotive deal ever negotiated is set to generate the world’s most powerful consumer market, combining the scale of U.S. and EU production and demand. What distinguishes this initiative is not only its ambition to reduce barriers, but also its commitment to integration, verticalization of supply chains, and traceability of critical inputs.