Chrysler investment in Michigan: A tax cut benefit or a hedge against NAFTA?

Chrysler is moving production of its Ram trucks to Michigan.

Fiat Chrysler Automobiles (FCA) has confirmed its plan to move its truck-making arm from Saltillo, Mexico, to Detroit, MI, the Chicago Tribune reports. The paper reported the move was in part due to the. U.S. tax cut, but there is also the impending threat of the U.S. from the North American Free Trade Agreement (NAFTA). NAFTA withdrawal is a possibility that President Donald Trump continues to hint at.

Moving the plant might shield the manufacturer from the legal and financial complications that might arise if the U.S. pulls out of NAFTA. Chrysler is also set to take advantage of the lowered corporate tax rate – a tax plan that favors manufacturing companies that conduct their business operations on U.S. soil. The company’s plan is to invest $1 billion into the proposed Michigan Truck Factory and bring about 2,500 jobs in the state.

The factory will assemble Ram pickups, which have been made in Mexico.

While NAFTA remains in flux, Mexico’s ambassador and representative at the most recent negotiations, Geronimo Gutierrez, remains optimistic about the talks though. He told CBS News “Inspite of important differences, we’re communication fluently, we’re engaging, and that’s important.”

The next round of negotiations is slated for Jan. 23.

AutoPacific Inc’s analyst Dave Sullivan, sees the benefits from Chrysler moving the plant. “At least making Trump’s tax plan look like it’s rewarding workers very quickly should bode well with administration,” he said.

“It is only proper that our employees share in the savings generated by tax reform and that we openly acknowledge the resulting improvement in the US business environment by investing in our industrial footprint accordingly,” said Chrysler CEO Sergio Marchionne.

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