By on August 18, 2017

made-in-usa

When Donald Trump took office, one of his first presidential acts was to rally domestic automakers for a series of meetings and promise to remove regulatory barriers. As the administration was a self-described ally to the car industry, the claim appeared genuine. There was some tough talk about foreign involvement but, for the most part, Trump appeared to be in domestic manufacturers’ corner.

As focus shifted toward the renegotiation of the North American Free Trade Agreement, automakers had one request: to not impede cross-border trade. It was their primary concern leading up to this week’s talks.

Two days later and the issue has become a major sticking point; placing auto industry groups from Canada, Mexico, and the United States at odds with the current administration. As NAFTA talks began in Washington, D.C., automaker and parts groups from all three countries began outright pleading with U.S. negotiators to abandon their push for tighter rules of origin. Now they are formally opposing it. 

“Rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content. Country of origin should be verified, not ‘deemed,'” U.S. trade representative Robert Lighthizer said on Wednesday in his opening remarks, Reuters reports.

The Trump administration’s goal is to alter NAFTA in a manner that would reduce the United States’ trade deficit with Mexico. Lighthizer’s claim is that the deficit is costing U.S. jobs and hindering domestic manufacturing. “The numbers are clear,” he said. “The U.S. government has certified that at least 700,000 Americans have lost their jobs due to changing trade flows resulting from NAFTA. Many people believe that the number is much, much bigger than that.”

Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Minister Chrystia Freeland entered the talks saying they are not in favor of specific national rules of origin within NAFTA — and the auto industry agrees.

“We certainly think a U.S.-specific requirement would greatly complicate the ability of companies, particularly small- and medium-size enterprises, to take advantage of the benefits of NAFTA,” said Matt Blunt, president of the American Automotive Policy Council.

Analysts have claimed the 700,000 jobs figure is a bit misleading. While most admit that jobs were lost to Canada and Mexico, they were primarily manufacturing jobs and likely offset by new jobs in other industries.

A nonpartisan Congressional Research Service has closely examined NAFTA and concluded the “overall net effect of NAFTA on the U.S. economy has been relatively small.” The report noted, “U.S. trade with Mexico and Canada was already growing before NAFTA and it likely would have continued to do so without an agreement.” Its overall assertion is that the impact of NAFTA, especially in regards to domestic employment, is difficult to quantify. While 700,000 job losses over two-decades is noteworthy, it isn’t relevant if they were replaced in other industries or not a direct result of the trade agreement.

“In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters,” reads the Congressional Research Service’s report. “The net overall effect of NAFTA on the U.S. economy appears to have been relatively modest, primarily because trade with Canada and Mexico accounts for a small percentage of U.S. GDP. However, there were worker and firm adjustment costs as the three countries adjusted to more open trade and investment.”

However, as specious as the jobs figure may or may not be, the deficit is real. The United States has a vehicle and automotive parts trade deficit of roughly $74 billion with Mexico and around $5.6 billion with Canada. Lighthizer says this is unacceptable.

Lighthizer’s suggestion is for the tightening of verification requirements and parts tracing to determine whether companies meet the 62.5 percent North American content requirement for autos and 60 percent for components.

If you know anything about the makeup of modern-day automobiles, you can see how problematic this could be. Most vehicles already don’t adhere to this standard. Auto groups say the 1994 percentages would have to change or else domestic companies would have to source a glut of components from U.S. suppliers who might not have enough to go around or face steep tariffs for importing them.

“Anytime you say this list or a part of this list has to come from one specific country you’re going to hurt all three countries,” Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Association, said.

“A car today probably has 25 to 30 percent advanced electronics, software content in it. In 1994, it had zero or 1 percent,” Volpe continued. “Could you address the tracing to help you get to NAFTA compliance level by capturing some of the work that’s being done in Silicon Valley or Waterloo, Canada? Yes.”

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9 Comments on “American Automotive Groups Are Formally Siding Against U.S. NAFTA Proposals...”


  • avatar
    ScarecrowRepair

    Economic illiteracy is rampant. The best trade policy is unilateral removal of all tariffs and trade barriers. If other people want to pay higher taxes to subsidize our imports, go for it! If other people want their governments to narrow their shopping choices, go for it!

    Exports are the price we pay for imports, just as jobs are the price we pay for buying stuff.

    Trade deficits themselves are oxymorons. Dollars out have to equal dollars in, by definition, with a fiat currency.

    Trying to compare individual country deficits is nonsense of the first water. Everybody runs a deficit with their grocery store, car dealer, mortgage holder, florist, shoe shine boy, and everyone but their employer — with the exception of those who work at said grocery store, car dealer, etc, and there the store runs a huge trade deficit. And guess what, they are all meaningless.

    Common sense is uncommon. How do you measure the specific content? Do you count the raw resources, the individual parts, the packaging of said parts, the transportation costs, the administration costs, the accountants, sales staff, advertising? Good luck trying to come up with any consensus.

  • avatar
    Fred

    The one thing business don’t like is change. Change is expensive.

  • avatar
    DeadWeight

    Here is the raw truth and it stings for Americans (and Canadians):

    Multinational corporations will never be in a position again to NOT have ready and steady access to

    1) cheap labor (e.g. $3.50 per hour in Mexico vs $14 to $26 per hour in US and Canada, NOT including benefits – none in Mexico)

    2) A de-regulalkzed swamp from a perspective of

    a) environmental standards (dump all the toxins at will without consequence)
    b) labor organizing, safety and other rights/obligations

    3) the ability to quickly close operations and facilities in one nation and move same to another

    It’s a race to the bottom for labor, the cheapest commodity in the world

    • 0 avatar
      Lorenzo

      China’s labor cost advantage has deteriorated as workers demand higher pay, in spite of the heavy hand of government. Mexico’s wages will go up too, and already have. $3.50/hour would have been heaven 20 years ago. That cost is also the product of the dollar/peso exchange rate. Purchasing Power Parity tells a different story.

      A better way to reduce the trade deficit with Mexico is to expand what is already beginning to reduce it: oil and gas. Mexico exports crude to American refineries, but imports refined petroleum products worth more than the crude. Mexico is also switching electrical generation to natural gas, but its oil wells can’t produce enough. They’re now beginning to import American gas, and that volume will go up as they shut down oil burning generation plants.

      Yet another way to reduce the deficit is what’s already happening: a reduction of illegal immigration. It’s not just the loss of low-skills jobs to illegals, they send a big chunk of earnings back to relatives. The scale of remittances is measured in Billions.

      If there’s still some deficit left, so what? Mexico is the one country we should want to see prosperous and stable. Trump’s words and enforcement of existing law may have reduced immigration, but if the stucco hits the fan down there, our government would be hard pressed to stem the tide. There’s no good solution to a Mexican economic collapse.

      • 0 avatar
        ScarecrowRepair

        The idea of a trade deficit with a single country is malarkey, just as the average (non-grocery store employee) shopper runs a trade deficit with their grocery store. It is meaningless drivel, fit only for politicians.

        But encouraging Mexico to become richer and more developed is an entirely good idea, not just to reduce crime, but to increase the pool of consumers and producers.

    • 0 avatar
      28-Cars-Later

      Tariffs.

  • avatar

    The ironic thing is that both sides have a point. U.S. car makers and their shareholders are right to make their cars as price competive as possible. If that requires purchasing parts that can be purchased cheaper elsewhere, so be it. The good thing is that people in the NAFTA countries also buy the finished product. Better to stay on top then. The downside is that it does move supply industry jobs to other countries. Bringing those jobs back would, could mean that U.S. car makers will see their domestic market share erode further away.

  • avatar

    Gosh, that took a long time to get posted… (no possibility of editing either).

  • avatar

    The days of seeing a car with 90% US content is over. NAFTA has allowed both Mexico and Canada to surpass America in auto parts production. If the US can’t compete with Mexico and Canada, how is it to compete with Germany, Japan, and China.

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