Trade War Watch: Report Claims White House Wants to Dictate Where Cars Are Manufactured

Matt Posky
by Matt Posky

The Trump administration has reportedly expressed an interest in deciding where and how automotive manufacturers do their business if they want to secure duty-free deals under the United States–Mexico–Canada Agreement (USMCA) that’s positioned to replace NAFTA. According to Bloomberg, there’s currently a discussion taking place between administration officials, congressional staff, and domestic and foreign automakers regarding the context of the legislation that lawmakers will ultimately have to vote on. The White House is said to want highly specific language that would allow it to select production rules unilaterally.

Considering how messy things have gotten with China, it could be useful to have extremely clear trade language and some direct oversight of businesses with global interests. But critics are worried the strategy could bring U.S. trade policy closer to the rigid policies already in place in the People’s Republic — a country America has attempted to distance itself from due to its ludicrous levels of government intervention.

The real fear is that the government could use this to give one manufacturer better treatment than another — cutting it a sweet deal for building in a politically advantageous area, for example. While plausible, we can’t confirm something that’s largely speculative.

What we do know is that the administration has hooked up a few U.S. companies with tariff exemptions in China in the past. Currently, the government bases those decisions on three factors — where the product is available, whether duties would cause severe harm to the company and/or U.S. economy, and if the product is strategically important or related to Chinese industrial programs. Some are fearful that additional rules could be applied to the USMCA, impacting local companies and regions in unexpected ways.

From Bloomberg:

The push comes amid Trump’s tariff-led assault on supply chains that run through China. It illustrates how much his administration has drifted from Republicans’ free-market ways and is willing to employ the sort of coercive tools used in command economies like China to force domestic production.

It’s also happening as the president’s tariffs on steel, aluminum and imported components from China have contributed to a slowdown in American manufacturing that has begun to cause the loss of factory jobs in some politically important swing states going into Trump’s 2020 reelection bid.

The negotiations over auto rules are taking place in parallel to discussions U.S. Trade Representative Robert Lighthizer is having with House Democrats on changes the lawmakers are seeking to the new Nafta, or USMCA.

Officials from Lighthizer’s office for months have been meeting with auto-industry executives to talk through the firms’ transition plans. Those would allow for a grace period of as many as five years before they have to comply fully with the new rules in order to ship products across North American borders duty-free.

The reason this is supposed to be concerning is down to that grace period. The agreement signed between the Mexico, Canada, and the U.S. references transition plans as an “alternative staging regime” each nation can apply on a producer-by-producer basis. Bloomberg seems worried that gives the United States Trade Representative too much power.

Congress and automakers have asked Lighthizer to adopt to uniform rules so companies can make plans without fears of retribution for opening a facility in one country, only to piss off another, or embracing policies not supported by the dominant political party (be it now or three elections down the road).

However, the automotive industry seems to have taken a shine to the USMCA overall. While we imagine a lot of that has to do with wanting something in place after NAFTA, they’ve also stopped complaining about its stringent compliance rules. Those require 75 percent of a car to be made in North America to avoid tariffs. Vehicles also needs to contain 70 percent of North American steel and aluminum. A little less than half of the assembly process likewise needs to take place at facilities with average employee wages of over $16 an hour — which is either a good way to help the Mexican workforce, or a sly way of convincing manufacturers it’s a less appetizing region in which to build a factory.

Without more context as to the specific language the White House wants included in the USMCA, the report could simply be a partisan attempt to stall its approval in Congress. That said, we don’t want any gaps in the plan that would allow for isolated parties to effectively dictate the fate of an entire industry either. Companies routinely need a thump on the head, especially lately, but it shouldn’t be done dictatorially. This is America, baby.

Expect more on this as useful details emerge. For now, consider the darker aspects a what-if situation.

[Image: Orhan Cam/Shutterstock]

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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  • Jeff S Jeff S on Oct 30, 2019

    Not suppose to be king yet Trump admires the fact that the Premier of China is appointed for life. I am sure if the Republicans had a majority in both Houses they would grant him lifetime leadership to be succeeded by either Don Jr. or Eric. The Republican Party does not exist anymore it is the party of our President and no Republican representative dare speak out against our President or they incur his wrath. A choice between a monarch or a socialist. As for the car industry they have to adapt to what leadership is in control at any given time. I doubt GM and Ford are so eager to develop EVs as much as they are preparing for a future where they are not allowed to make ICE vehicles.

  • Whatnext Whatnext on Oct 30, 2019

    LOL, I thought the last thing conservatives wanted was government dictating business decisions, and yet here they are all tripping over themselves in a tizzy to defend this.

    • Slavuta Slavuta on Oct 31, 2019

      If you think more about it, there is nothing new in government dictating things to business. When it comes to national security gov. has full mandate to do things to provide this. If this case, providing jobs to Americans is important to national security because masses without jobs and future have tendencies to overturn the government and bring country into chaos. Also earners help collecting taxes to pay for military. Gov dictates many things like that. For example, military corporations can't sell certain equipment to other states. Government can tax certain business more than other. A special tax on medical device for example. Tax on cigarettes, alcohol, casino. Gas guzzler tax. In Israel gov. made a rule - no egg or chicken can enter the country because chicken is their strategic food. When it comes to weapons, gov requires certain % of gun parts to be made in USA. Basically, we're already there.

  • SPPPP Too much individual choice in that program, maybe?
  • Eric I would like one of each, please. But make that a '641/2 Mustang and a 1970 240Z
  • Kwik_Shift_Pro4X Funny comparison:
  • Kwik_Shift_Pro4X Some insight.
  • Amwhalbi I know this is apples and oranges, but I'd rather have an Elantra N, a Jetta GLI or a Civic Si than either the Mustang or the Z.