Today’s Pickup: U.S. auto jobs at risk in NAFTA talks

Good day,

A new report says the U.S. will lose 50,000 auto parts industry jobs if the country pulls out of the North American Free Trade Agreement (NAFTA), according to Reuters.

The report, from the Boston Consulting Group and sponsored by the Motor Equipment Manufacturers Association, claims that the result of a U.S. termination of the agreement will result in higher tariffs for shipping products to Mexico and Canada which would reduce demand for U.S. components.

The U.S. auto parts industry employs about 870,000 workers.

President Donald Trump has said NAFTA, with its low to non-existent tariffs, has resulted in a loss of U.S. jobs as American companies have shifted production to Mexico to take advantage of lower wages and production costs.

Eliminating NAFTA would result in a return to the full provisions of tariffs under World Trade Organization rules, according to the Boston Consulting Group.

Mexico and Canada charged higher tariffs pre-NAFTA, the study said, so they would fare better without the trade pact.

One of the arguments U.S. negotiators are pushing for is higher “rules of origins” requirements. Currently, the U.S. allows any vehicle sold in the country to avoid tariffs if 62.5% of the production is conducted in the U.S. The administration is pushing to boost that to 85%, and add a 50% U.S. origin requirement that would mandate that any vehicle produced in a NAFTA country have 50% of those components produced in the U.S.

Critics say this approach could cost the industry tens of thousands of jobs and potentially crippled U.S. automotive production.

According to Bruce Hirsch, principal of Tailwind Global Strategies, car production in America is up by over 1 million cars over the year before NAFTA went into effect – 23 years ago – and the industry employs 800,000 directly and millions more indirectly.

He believes that if the U.S. moves to an 85% requirement, it would become more profitable for U.S. automakers to produce vehicles overseas – perhaps in China – and pay the tariff, currently between 2.5% and 5%, than paying the higher production costs in America.

“Instead of encouraging more U.S. content, these provisions will lead to less U.S. content,” Ann Wilson, the Chamber of Commerce’s head of government affairs.

Did you know?

Currently, the U.S. requires 62.5% of automobile production to take place in North America to qualify for no tariffs. U.S. NAFTA negotiations want to raise this to 85% and introduce a proposal to require 50% of components to come from the U.S.  

Quotable:

“With these actions, we are moving toward lower costs and more options in the health care market, and taking crucial steps toward saving the American people from the nightmare of Obamacare.”

– President Donald Trump, after signing an executive order potentially expanding the ability of associations to sell health insurance to more people

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Final Thoughts

U.S. NAFTA negotiators are seeking to boost automotive production in the country by requiring 85% of all vehicles to be made in North America and 50% of the parts for those vehicles to be produced in the U.S. to avoid tariffs. Proponents say this will lead to more American jobs, but critics counter that it will become cheaper for American automakers to pay the tariff rather than the increased production costs. It’s a high-stake deal-making with millions of American jobs at stake.

Hammer down everyone!