American Automotive Groups Are Formally Siding Against U.S. NAFTA Proposals

Matt Posky
by Matt Posky
american automotive groups are formally siding against u s nafta proposals

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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2 of 9 comments
  • Voyager Voyager on Aug 19, 2017

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

  • Akear Akear on Aug 20, 2017

    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.

  • MKizzy The Mazda 6 wagon needs to be brought here pronto. Sexy looks aside, it would look less out of place in Mazda's CUV lineup vs the sedan, and since Mazda wants to go "premium," wagon customers tend to be the most affluent (if Daimer-Benz is to be believed). My second choice is the attractive Hyundai i40 wagon, which would replace the defunct VW Sportwagon in the small/mid size wagon niche.
  • Carlson Fan GM needs new leadership. A 9000lb off-road vehicle???? Don't get that thing stuck in a remote area.Imagine if they had brought back the iconic K5 Blazer name and built something to compete with the Wrangler like Ford did with the Bronco. They could have offered that with an electric power train in addition to the gas models. Ford may have some quality issues right now but whoever is steering that ship knows what they are doing. The Bronco & Maverick where both brilliant ideas.
  • Carlson Fan "But it does give General Motors an opportunity to dangle a diesel in front of the faces of consumers and presumably one that yields better gas mileage than the 6.2-liter V8 they’d otherwise be buying."I'll take the 6.2 thank you. The diesel offers some advantages over gas if you use the truck for towing, lower total cost of ownership isn't one of them. I'll add in the gas engine offers better long term reliability & cold weather performance if you live where it snows like me.
  • Carrera The diesels built during the last 10-15 years, if kept stock, don't really stink at all.
  • MaintenanceCosts I keep finding myself drawn to the Fox PLCs, both the Thunderbird and the Mark VII. They really got the design right by 1980s standards. The cars were reasonably sized but didn't look dinky like the 1986 Eldorado, they were comfortable and drove pretty well, and they were available with a 302 (that even got non-asthmatic in the late years).When I bought my first car - a 1987 Taurus - I also thought about Aerobirds, but I decided (probably correctly, given the number of carpools I was part of) that I wanted four doors.