Team Trump Eases Demands on NAFTA's Regional Auto Content

The United States is softening the contentious automotive content requirement mandates pushed by the Trump administration as part of NAFTA renegotiation talks. While the demand is only one of many asks coming from the U.S., both Canada and Mexico said forcing 85 percent of a vehicle’s overall content to be sourced from the three countries (in order to side-step tariffs) was a nonstarter. Over the past year, the issue became a major sticking point in the trade talks — hindering progress and possibly dooming them to failure.

While Trump’s intent was to bolster domestic employment by incentivizing North American parts suppliers, automakers expressed concerns and noted it was often difficult to reach the current threshold of 62.5 percent.

The United States has now proposed applying the new content requirement only to major components (like a vehicle’s powertrain) while leaving fasteners (nuts, bolts, etc.) alone. As an automobile is made up of tens of thousands of individual parts, deciding what should and should not be counted will make a big difference. Still, some manufacturers are likely to have difficulty meeting the proposed content requirement on critical engine components.

According to Bloomberg, no agreement has been reached thus far and Mexico and Canada could still reject the new proposal. But it’s a step toward compromise — a tactic which none of the member states have really taken advantage of during negotiations.

Despite trade talk updates taking on a more optimistic tone since the start of 2018, very little progress has been made. The three countries are still a long way from reaching an agreement and time is quickly running out. While the U.S. takes a softer NAFTA stance in the wake of Donald Trump’s global trade issues, Mexico’s presidential election is fast approaching. Leftist frontrunner Andres Manuel Lopez Obrador has already suggested suspending trade talks until after the July election and his selection for foreign minister, Hector Vasconcelos, has already said the death of NAFTA wouldn’t be “the end of the world.” There is a very strong chance that, if negotiations aren’t settled before July, a newly elected Lopez Obrador may decide to suspend them indefinitely.

Currently, the United States takes about 80 percent of Mexico’s exports. A breakdown in trade would likely be disastrous for both countries in the short term. But most Mexican politicians, including Lopez Obrador and Vasconcelos, have said it would be important to maintain a working relationship with the U.S. while pursuing additional trade opportunities in Europe and Asia.

Meanwhile, Canadian ambassador David MacNaughton painted a similarly bleak picture for NAFTA. “I don’t know what an agreement in principle looks like, really,” MacNaughton told reporters Wednesday in Toronto. “There’s still lots of issues. There’s differences of opinion and we’re going to work hard to try and narrow down the gaps and get to as much of an agreement as we possibly can.”

For automakers, a winning NAFTA strategy is one that minimizes import/export hurdles, is easy to understand, and remains logistically feasible. But most manufacturers rely heavily on foreign suppliers and would have difficulty meeting the 85 percent quota — domestic assembly frequently does not mean domestically sourced parts.

“We appreciate U.S. negotiators’ goal to support American jobs,” Ford spokeswoman Christin Baker told Bloomberg. “However, there is a concern that significant changes to the rules of origin would not achieve that shared goal. We look forward to seeing the official details, and we continue to urge negotiators to include enforceable rules prohibiting currency manipulation in a revised NAFTA.”

As the general tone surrounding the talks loses some of its negativity, most representatives and spokespeople are careful not to come across as overly optimistic. Kelly Craft, the U.S. ambassador to Canada, may have been the only official with an upbeat voice this week. “We all want a good outcome … There’s no reason to tear NAFTA down,” she said recently in Toronto. “I’ve got every confidence that together, we will fix NAFTA.”