Ending NAFTA Could Cost U.S. 50,000 Auto Jobs: Study

Matt Posky
by Matt Posky
ending nafta could cost u s 50 000 auto jobs study

Automotive trade groups have issued warnings about the scrapping of the North American Free Trade Agreement all year. In January, the Center for Automotive Research claimed killing NAFTA could result in the elimination of at least 31,000 auto jobs within the United States. This week, a new study sponsored by the Motor Equipment Manufacturers Association upped that estimation to around 50,000.

With early negotiations not going particularly well at the moment, the new tally serves as a potential warning. If NAFTA is abandoned, North American countries would all likely revert to rules dictated by the World Trade Organization, resulting in higher tariffs from all sides.

While 50,000 fewer jobs is the upper echelon of what could be expected, a few things have to go wrong for it to reach that point. First, Mexico and Canada would have to revert to pre-NAFTA tariff levels — which were comparably higher than the United States. If so, manufacturers would almost assuredly begin sourcing more parts from the same countries where the vehicles are assembled, and gradually move production to lower-cost regions like China.

Reported by Reuters, the study also estimates job losses could be as high as 24,000 if renegotiations result in the content requirements proposed by the United States. The U.S. wants North American parts content to rise to 85 percent overall from the current 62.5 percent. In addition, the country is also pressing to add a new 50-percent U.S.-specific content requirement on all American-made automobiles. The issue is fiercely opposed by both officials in both Canada and Mexico — some have even called it a deal killer.

Those are worst-case scenarios, of course. We don’t know what’s going to happen. On Wednesday, President Donald Trump spoke to Canadian Prime Minister Justin Trudeau in the oval office on the future of NAFTA. After the meeting, Trump issued no concrete assessment of the situation.

“It’s possible we won’t be able to make a deal, and it’s possible that we will,” he said. “We’ll see if we can do the kind of changes that we need. We have to protect our workers, and in all fairness, the prime minister wants to protect Canada and his people also.”

When asked if he would be willing to make a deal with Canada if Mexico was unwilling to compromise, Trump said: “Oh sure, absolutely. It’s possible we won’t be able to reach a deal with one or the other, but in the meantime we’ll make a deal with one.”

The president has repeatedly stated that a NAFTA revision was essential to procuring additional U.S. jobs, but numerous industry trade groups have balked at the idea.

“Counter to the incoming Trump administration’s goal of creating manufacturing jobs, the withdrawal from NAFTA or the implementation of punitive tariffs could result in the loss of 31,000 U.S. jobs,” said the Michigan-based Center for Automotive Research during Trump’s initial suggestion to abandon the agreement.

With the Motor Equipment Manufacturers Association’s data, sourced from Boston Consulting Group, yielding even higher estimates, backing out of NAFTA doesn’t look like a great play for parts suppliers or automakers. But the fact remains that, while the trade agreement appears to have created more employment than it killed, the United States still lost quite a few automotive placements to Mexico since 1994. It is also believed to have contributed to some mild wage-suppression over the last two decades.

However, there are no guarantees that abolishing NAFTA will change anything for the better. Numerous research firms and industry groups have claimed losing the deal would cripple an industry interdependent with all-three countries by exacerbating the cost and complexity of doing business.

[Image: General Motors]

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  • Thornmark Thornmark on Oct 13, 2017

    >>In January, the Center for Automotive Research claimed killing NAFTA could result in the elimination of at least 31,000 auto jobs within the United States. This week, a new study sponsored by the Motor Equipment Manufacturers Association upped that estimation to around 50,000.

    • See 1 previous
    • Gtem Gtem on Oct 13, 2017

      @28-Cars-Later Heck in addition to the Carrier plant that made the news, Indianapolis just also lost 300 jobs from Rexnord bearing moving south of the border. The theory behind 'lifting every boat' and eventually everyone's quality of life is so high that we're not having this massive jobs drain is a nice one. In reality, 20 some years on and we're still bleeding out in the heartland. The Japanese transplants and their suppliers are a welcome reverse trend, but in terms of numbers it is still very much a net loss.

  • Threeer Threeer on Oct 14, 2017

    A country that cannot produce for itself becomes slave to those that can... While *some* investment has come back to the US, as a whole, I believe we continue to drain wealth to other countries that in turn use that wealth to gain influence around the globe at our expense. Just look at China's massive build-up of their military and their growing desire to push their weight around. Not saying war is in the near (or even semi-distant) future with them, but if it ever came about it would be the height of irony that they did it largely financed by us. As for NAFTA...while it is my personal belief that this was not negotiated in America's best interests, I will concede that a deeper study would be needed to determine the true economic loss that was caused by this. Maybe it's not as lopsided as I think, but I'm not entirely sure ol' Ross was that far off, either.

    • See 1 previous
    • Big Al from Oz Big Al from Oz on Oct 14, 2017

      Theeer,your initial comment is nonsense. How and where is the US a slave? Where is the US working for cheap incomes? Let alone in a remotely slave like situation? Sounds pretty when it rolls off the tongue.

  • FreedMike All 35 units, eh?
  • Kwik_Shift Good looking wagon.
  • Kwik_Shift I'm kind of excited to check one out. Local dealers are anticipating 3 months for the first one to come in.
  • Jkross22 We're all being a little unfair to GM. It could be worse. They could have partnered with Microsoft to deliver RT - that wonderful tablet OS that couldn't run any legacy MS products - and brought it to the car. Or Win 95 and Clippy.
  • JMII The change could help GM better collect data from its drivers and passengers, and it could also be used as a foundation if GM decides to charge for subscription services.Could? Like the sun *could* set in the west today?Things didn't so well when BMW tried to charge for this service. This will go VERY badly for GM. Can you imagine the customer service calls?Customer: hello I am trying to hook up my phone to my new car but it isn't workingGM: we offer Google services nowCustomer: ok I use Google all the time, but how do get the stuff on my phone to show on the screen?GM: its doesn't work that way, your phone is not involved at all, just enter all your personal information again into our system and we will manage it for youCustomer: ummm... my [insert name of competitive vehicle here] doesn't work that way.GM: but we've made it easier for youCustomer: seriously, you don't support Apple nor Android? Guess I shouldn't have bought this POS, I'll be sure to tell all my friends to never buy a GM product, have a nice day.GM: ...This ultra-mega-dumb even for GM. I assumed if anything moving forward technology wise more OEMs would stop developing their own systems as a cost savings measure and just let the phone OS handle everything. Seems data collection is more important. Well as long as TikTok isn't installed we are safe right?