Auto industry groups are fully engaged in the ongoing North American Free Trade Agreement (NAFTA) renegotiations, hopeful to see the massive trade pact modernized in many ways, but meeting the threat of the United States’ withdrawal from it with trepidation.
The second round of NAFTA discussions began in Mexico City on Friday between the United States, Mexico and Canada. Given that after the initial talks wrapped up in August President Donald Trump threatened to exit the agreement on more than one occasion, it remains to be seen what the ongoing negotiations will ultimately mean for the auto industry.
Yet industry groups have formed a united front to address most issues. The Alliance of Automobile Manufacturers, American Automotive Policy Council, Global Automakers Association (GAA), Motor Equipment Manufacturers Association and the Ohio Canada Business Association all have stakes in the fight from the manufacturing and supply sides, but groups like the American International Automobile Dealers Association (AIADA) also have skin in the fight.
“Today’s U.S. automotive industry is a critical driver for the U.S. economy, supporting millions of direct and indirect jobs across the country,” GAA President and CEO John Bozzella wrote last month. “International automakers powered much of this comeback, investing more than $63 billion in the United States since the North American Free Trade Agreement took effect. Trade and economic integration enabled by NAFTA supports U.S. auto production, employment and global competitiveness.”
Main concerns for groups like his are that NAFTA retain the existing rules of origin requirements for vehicles, support the free flow of data, cybersecurity measures, and in general be supportive of electronic commerce, while also upgrading protections of intellectual property law, customs and trade provisions, and equalizing incentives of U.S. vehicle production and exports. All of this takes second footing to keeping NAFTA a trilateral agreement, however.
“If the U.S. pulled out of NAFTA, it would be devastating for the auto industry and the United States — and all of North America, for that matter,” Libby Newman, vice president of public and industry relations for the AIADA, said in an interview with Transportation Today. “I think the investment by our automakers has been undersold. It’s a significant investment and were it to go away, the cost would be substantial.”
Nameplate dealers alone contributed 577,000 direct employees, and had a $32 billion payroll last year under the current agreement, Newman said. With manufacturers factored in, there are 1.29 million employee jobs in the mix. And based on last year’s figures, $88 billion of employee payrolls are on the line, based on numbers generated by a joint GAA-AIADA impact study.
This contrasts with a statement released by Commerce Secretary Wilbur Ross in the days leading up to the negotiations.
“Since the signing of NAFTA, we have seen our manufacturing industry decimated, factories shuttered, and countless workers left jobless,” Ross said. “President Trump is going to change that.”
One concern that would impact jobs among the industry, however, was the potential for a border adjustment tax, which officials have since rejected. It would add a 20 percent tax on all goods and services imported into the United States —something the AIADA estimates would have added an average of $2,000 per vehicle onto car sales in-country. Dealers, according to Newman, would have to raise costs or swallow them, in a business where many aren’t running on large margins.
Since nothing is 100 percent American-made in the auto industry, costs would have gone up across the board. “The border adjustment tax would have driven up costs on everyday goods and put Americans out of work,” AIADA President Cody Lusk said in a written statement.
Building on that notion of no automobile being 100 percent made in a single place is potential changes to the rules of origin, which mandate that products meet minimum content requirements in the three NAFTA nations to be tariff-free.
The Trump administration has said it wants to update rules of origins, potentially by raising the current 62.5 percent NAFTA-originating content rate under the belief that it causes many parts from non-NAFTA countries to be used in goods assembled in the NAFTA region, which then flood the U.S. market tax-free. The auto industry fiercely opposes such a change.
The Center for Automotive Research noted that, in 2016, U.S. vehicle exports to Canada and Mexico made up 40 percent of total U.S. light vehicle exports, while Canada and Mexico made up 75 percent of U.S. motor vehicle parts exports, and 51 percent of U.S. parts imports. Changes to NAFTA could in turn adjust the structure of that arrangement.
Manufacturers, Newman pointed out, have based their long-term production plans on current rules of origin requirements. If that changes suddenly, it would essentially pull the rug out from under them and send them scrambling.
NAFTA “has made the U.S. a country that exports a lot of cars,” Newman said. “For example, BMW is building here because it makes sense for them to build here and export to other countries. Same for all of them. That’s because of NAFTA.” Since NAFTA was being negotiated in 1993, international automakers have doubled their number of employees and tripled production.
“It certainly hasn’t hurt the auto industry.”