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]