Car Industry Sees `Lose-Lose’ Outcome in Trump Nafta Changes

By: | at 11:15 AM | International Trade  

The auto sector is sounding alarms on the Trump administration’s efforts to overhaul Nafta, with North America’s top parts supplier warning an expected push to increase content requirements in cars could result in a “lose-lose” situation.

Changes to rules of origin—which govern what share of a car must be sourced from Nafta countries for the vehicle to receive the trade pact’s benefits—will add both complexity and costs, said Don Walker, chief executive officer of Magna International Inc.

“If the required content to hit the threshold for a Nafta vehicle is too high, people may say, ‘Look, it’s just too difficult, it’s too high, so we’ll just ship the vehicles in,’” Walker said in an interview in New York ahead of the talks. “In which case, they pay the duty, and it’s a lose-lose.”

The fourth round of negotiations over the North American Free Trade Agreement is set to begin Wednesday, with signals mounting that the U.S. is putting potentially deal-breaking proposals on the table. The U.S. Chamber of Commerce and Mexico’s auto industry group already have come out against an anticipated proposal for U.S.-specific content requirements. Introducing such a rule, or raising Nafta-made content requirements from today’s 62.5 percent, could risk disruption to the auto industry’s vast supply chain.

Regional Content

“If the regional content is by specific country, I think it adds a lot of complexity, and then every country would probably want regional content,” Walker said. “If you have U.S. content, and Canadian content, and Mexican content, the reporting and the bureaucracy and the tracking becomes so complicated—and costly, quite frankly.”

It will also be expensive for consumers, Mark Scarpelli, the chairman of the National Automobile Dealers Association, warned Tuesday in Detroit.

“Anything that raises the price of a car will affect ultimately consumers and automobile sales,” he said. “We are concerned, but at the end of the day, we don’t know what the rule-making is going to be.”

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President Donald Trump fixated on the auto industry and carmakers investing in Mexico throughout his campaign and early in his presidency, criticizing companies including Ford Motor Co., General Motors Co. and Toyota Motor Corp. He told workers near Detroit in March that the U.S. would become “the car capital of the world again.”

‘Blizzarding’ Congress

John Bozzella, CEO of the Association of Global Automakers, said the group that represents overseas-based carmakers in the U.S. has been “blizzarding” Capitol Hill to explain why the expected Nafta proposals are a problem. It’s been meeting with members of the Trump administration and lawmakers from states where vehicle manufacturers have a large presence as well as holding “extensive briefings” with Republicans and Democrats on Senate Finance and House Ways and Means committees, he said.

“We’re concerned that we may be on a course to upset the trade balance in Nafta that has unquestionably led to a vibrant and successful auto industry in the United States,” said Bozzella, whose group represents companies including Toyota, Honda Motor Co. and Nissan Motor Co.

The U.S. had a $63-billion trade deficit with Mexico last year, compared with a surplus of $7.7 billion with Canada. The automotive trade deficit with Mexico was $74 billion. In other words, if you took out trade in cars and car parts over America’s southern border, the U.S. would actually be running a trade surplus with Mexico.

Aurora, Ontario-based Magna has over 25,000 employees in U.S. and supplies more original equipment parts by sales to carmakers on the continent than any other supplier, according to Automotive News rankings. Changing the rules now, after automakers and suppliers have invested across the region, would be a costly shift, Walker said.

“There’s been huge investments in Canada, the U.S. and Mexico, that are long-term assets,” he said. “To try and change that would be extremely expensive for the industry.”


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