US President Donald Trump is attempting to make good on one of the major promises of his presidential campaign, meeting with the leaders of Canada and Mexico in order to renegotiate the North American Free Trade Agreement. The trade agreement established the United States and the two other member nations as free trade partners, eliminating barriers to trade like tariffs, while incentivizing the outsourcing of US manufacturing jobs to Mexico.
But the way in which President Trump and his administration are going about trying to establish a new rulebook for trade between the three countries is cause for concern among US automakers. As The Detroit News reports, the Trump administration has proposed a requirement that 85 percent of a product’s parts must come from the US, Canada, or Mexico in order to avoid tariffs – up from 62.5 percent today. Additionally, the proposal includes a new requirement that at least 50 percent of the parts must come from the US.
Alliance of Automobile Manufacturers VP of Federal Affairs Jennifer Thomas warns that the proposal is “onerous” and “unprecedented,” and isn’t likely to succeed in adding jobs to the US economy.
“We strongly believe this is going to have an adverse effect,” she says. “It’s going to lead to a decrease in production, a decline in jobs and an increase in cost to consumers. A lot of companies are going to forgo the NAFTA benefit and just pay the tariff, so you’ll see a shift in production to other locations.”
Ms. Thomas also says that the proposal could cause Canada and Mexico to exit the renegotiation of NAFTA altogether.
“There is growing concern that this is ultimately going to lead to a withdrawal because with the contentious proposal that has been put on the table, it’s hard to see how the three countries can come to agreement,” she says. “This would really set us back and hurt our manufacturing base in the US and hurt our ability to export.”
Granted, prompting NAFTA’s other two member nations to withdraw, effectively terminating the agreement, might not be too far out of line with the Trump administration’s wishes. The president has previously threatened to pull the US out of the trade deal himself, and in a Forbes interview published last Tuesday, he said: “I happen to think that NAFTA will have to be terminated if we’re going to make it good. Otherwise, I believe you can’t negotiate a good deal.”
