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

Matt Posky
by Matt Posky

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.

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • 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....

  • Ajla There's a melancholy to me about an EV with external speaker-generated "engine" noise and fake transmissions. It feels like an admission from the manufacturer that you're giving something up and they are trying to give back some facsimile of it. Like giving a cupcake scented candle to someone on a diet. If I was shopping for an EV I'd rather go to a company enthusiastic about it rather than apologetic.
  • EBFlex More proof of how much EVs suck. If you have to do this, that means you are trying to substitute what people want...and that's ICE.
  • Akear The only CEO who can save Boeing, GM, and Ford is Alan Mulally. Mulally is largely credited with saving both Boeing and Ford. The other alternative is to follow a failed Jack Welch business model. We have all witnessed what Jack Welch did to GE, and what happened to Boeing when it was taken over by GE-trained businessmen. Below is an interesting article on how Jack Welch indirectly ruined Boeing.https://www.thedailybeast.com/how-boeing-was-set-on-the-path-to-disaster-by-the-cult-of-jack-welch
  • ChristianWimmer The interior might be well-made, but the design is just hideous in my opinion. It’s to busy and there’s no simplistic harmony visible in it. In fact I feel that the nicest Lexus interior ever could be found in the original LS400 - because it was rather minimalistic, had pleasing lines and didn’t try to hard. It looked just right. All Lexus interiors which came after it just had bizarre styling cues and “tried to hard” if you know what I mean.
  • THX1136 As a couple of folks have mentioned wasn't this an issue with the DeLorean? I seem to recall that it was claimed you could do a 'minor' buff of the surface and it would be good as new. Guess I don't see why it's a big deal if it can be so easily rectified. Won't be any different than getting out and waxing the car every so often - part of ownership, eh.
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