Here's How Trade Negotiations Are Looking for the Month of May; Steel Tariffs Stalled Through June

Matt Posky
by Matt Posky
heres how trade negotiations are looking for the month of may steel tariffs stalled

May kicked off with a bundle of trade deals going into hibernation mode. After some legitimate — albeit quaint — progress, NAFTA decided to take a break this week. Currently, U.S. Trade Representative Robert Lighthizer is in China to circumvent that brewing trade war and is unable to commit himself to the North American Free Trade Agreement’s renegotiation.

That’s probably fine, because Mexico’s auto reps need time to cool off.

The United States’ most recent proposal for increasing NAFTA’s regional automotive content includes a four-year evolvement to meet a 75-percent regional value threshold. It also suggests new labor rules requiring “substantial work” to be set at wages of $16 an hour or more. The move is intended to help the U.S. and Canada bolster production and force Mexico to raise its own wages.

A significant portion of Mexican trade officials aren’t keen on either aspect, resulting in a mixed response overall.

According to Reuters, industry groups aren’t celebrating the new proposal, either. Mexican Auto Industry Association president Eduardo Solis said the U.S. pitch was absolutely not acceptable.

“The percentage, the transitions, the restrictions. You have to understand the U.S. proposal is like putting padlocks on padlocks,” Solis said. “Imagine a car that does comply with the percentage, but doesn’t comply with all the core parts. Or you comply with core parts but don’t meet the steel and aluminum requirements. Or you comply with the first three but you don’t meet the wage requirements … It has the potential to influence investments, influence production in all three countries.”

The Center for Automotive Research in Ann Arbor, Michigan, estimates Mexican auto assembly workers average just below $6 an hour, with auto parts plant employees averaging under $3 an hour. Meanwhile, U.S. automotive employes average closer to $22 per hour and Canadians come in just shy of $20.

While the wage rules are ambitious, content requirements have been scaled back as a compromise. The previous overall regional value content proposal was set at 85 percent. But opposition from Canada, Mexico, and the automotive industry, resulted in U.S. negotiators scaling the plan back to 75 percent. The mandate is also no longer universally implemented. While certain high value parts (like engines and transmissions) would have to meet the 75 percent threshold, lesser parts would only be subject to today’s regional value threshold of 62.5 percent. Auto manufacturers would also need to purchase 70 percent of the steel and aluminum they use from North American suppliers.

The U.S. Alliance of Automobile Manufacturers has expressed concerns that the new deal could push business overseas.

Speaking of business overseas, let’s get back to Lighthizer’s trip to The People’s Republic. President Donald Trump’s 25 percent tariff on steel exported to the U.S. has really rattled China’s cage — despite the country not sending much of it to America. We’re not sure if the strategy, which also includes a 10 percent tax on aluminum, was boldly brilliant or totally insane. But it appears to have worked in getting China’s attention, in addition to other import tax proposals.

The country has since promised to open up the Chinese financial sector, purchase more natural gas from the U.S., lower its own tariffs, and allow foreign companies complete ownership of their own businesses after 2022. Lighthizer and company will be tasked to find out if these offerings are more than empty promises.

Still, the tariffs have caused a backlash abroad. The European Union threatened to retaliate if steel and aluminum tariffs took effect by imposing import levies on politically targeted American goods. The United States has been scrambling to cut amenable deals with allied nations. While the White House doesn’t want to alienate the countries it depends on, the president insists he wants to put an end to decades of unfair trading practices with foreign nations.

As a result, the Trump administration announced it has decided to stall most of its tariffs on imported steel and aluminum until at least June 1st. South Korean officials have already received a permanent exemption the tariffs as part of an updated free trade agreement signed in March. Australia, Argentina and Brazil also appear to have reached an agreement that would avoid import fees. Talks are progressing with Canada, Mexico and the European Union.

Japan, already subjected to the tariffs, remains committed to maintaining positive relations with the United States. While a major exporter of steel, most of Japan’s carbonized iron goes to Asia. What does make it into America is often of a high grade and the island nation feels confident the U.S. will take that into consideration when handing out tariff exemptions in the future.

We’re not entirely sure what the long term strategy is. For the most part, the biggest impact these metal levies have had on domestic car production comes from German manufacturers concerned the deal could mess with auto assembly in the Southern states. Everyone seems worried about a trade war but, thus far, one hasn’t manifested.

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6 of 15 comments
  • Lne937s Lne937s on May 02, 2018

    I think that it is unreasonable for us to ask another country to pay its employees in the automotive sector more than the overall minimum wage we set in this country. We can not claim that they need more than US minimum wage in a country with much lower cost of living if much of our country in other sectors makes less than that. Image if US agricultural goods were subject to a tariffs if farm labor wasn't paid at least $16. But requiring all countries in NAFTA to meet US minimum wage would not be bad.

    • Ect Ect on May 02, 2018

      In Canada, there is no federal minimum wage, it's a matter of provincial jurisdiction. In fact, minimum wage in most Canadian provinces is already higher than the US level - especially for hospitality workers. In Mexico, imposing a vastly higher wage structure to meet the US minimum wage level would result in severe economic disruption. The average wage would go from about $5 per day to $7.25 per hour, which would shock the economy into a coma. As bullnuke pointed out, it costs a lot less to live in Mexico than in the US, so simple wage comparisons are meaningless. One of the major purposes of NAFTA is to, over time, enable Mexico to upgrade its economy, which will improve incomes and create employment opportunity. This, in turn, will create new opportunities for US exports and reduce illegal immigration. The US does not benefit from impoverishing Mexico, quite the reverse.

  • DougD DougD on May 02, 2018

    The tariffs on Aluminum seem particularly ill advised, because the domestic American Aluminum industry will not be coming back easily. Because the biggest cost is the eletricity required for the reduction process, global Aluminum output comes from: The Middle East - Power from natural gas turbines (free fuel coming out of the ground) Canada and Russia - Power from hydroelectric development China - Power from cheap dirty coal The US mothballed nearly all their NW smelters during the California Energy Crisis, the companies resold their power contracts and made a killing. In the NE the electricity source was high quality coal which was too expensive to be profitable. The plants have either been mothballed for 20 years or bulldozed. Who is going to take a chance on a multi billion investment for an unprofitable situation temporarily buoyed by politics during a volatile era?

    • See 2 previous
    • Ect Ect on May 03, 2018

      @highdesertcat "look at the economic disasters that were the dark ages of 2009-2016" Not so. The recession that started in 2007 ended in late 2009. The US economy grew in each of the 2010-2016 years. Manufacturing output went up every year. And by late 2016, the country was virtually at full employment. That's not losing. The period 2004-2008, on the other hand, was a VERY different story. And not a good one....

  • SilverCoupe I am one of those people whose Venn diagram of interests would include Audis and Formula One.I am not so much into Forums, though. I spend enough time just watching the races.
  • Jeff S Definitely and very soon. Build a hybrid pickup and price it in the Maverick price range. Toyota if they can do this soon could grab the No 1 spot from Maverick.
  • MaintenanceCosts Would be a neat car if restored, and a lot of good parts are there. But also a lot of very challenging obstacles, even just from what we can see from the pictures. It's going to be hard to justify a restoration financially.
  • Jeff S Ford was in a slump during this era and its savior was a few years away from being introduced. The 1986 Taurus and Sable saved Ford from bankruptcy and Ford bet the farm on them. Ford was also helped by the 1985 downsize front wheel drive full sized GM cars. Lincoln even spoofed these new full size GM cars in an ad basically showing it was hard to tell the difference between a Cadillac, Buick, and Oldsmobile. This not only helped Lincoln sales but Mercury Grand Marquis and Ford Crown Victoria sales. For GM full size buyers that liked the downsized GM full size 77 to 84 they had the Panther based Lincoln Town Cars, Mercury Grand Marquis, and Ford Crown Victorias that were an alternative to the new GM front wheel drive full size cars that had many issues when they were introduced in 1985 and many of those issues were not resolved for several years. The Marks were losing popularity after the Mark Vs.
  • SCE to AUX Toyota the follower, as usual. It will be 5 years before such a vehicle is available.I can't think of anything innovative from them since the Gen 1 Prius. Even their mythical solid state battery remains vaporware.They look like pre-2009 General Motors. They could fall hard.