President Donald Trump’s stated disdain for the North American Free Trade Agreement (NAFTA) has mostly been directed at Mexico rather than Canada, yet Canadian industry executives are a bit uneasy about business relations with their U.S. counterparts should Trump’s ire start targeting the northern neighbor.
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Having been humming along in comfortable coexistence across the world’s longest unfortified international boundary since Canada began producing Ford Model Cs in 1904, a possible trade war could gum up the works for Canadians and Americans alike. According to KPMG, a given part or sub-assembly may traverse the Canada-U.S. border up to seven times before finally being affixed to a vehicle.
This rather astounding statistic, plus a recent encouraging meeting among Trump and Prime Minister Justin Trudeau, present further evidence “recognizing the partnership between the U.S. and Canada and how integrated the two countries are,” says Jean-François Champagne, president of the Automotive Industries Association (AIA) of Canada, which represents the north-of-the-border aftermarket.
Aftermarket businesses in Michigan and Ontario are especially intertwined. “Most of the distribution outlets are operating on both sides of the border,” he reports, creating concerns over the ramifications of a renegotiated NAFTA and/or American implementation of a BAT, the border adjustment tax proposal that has been floated by the Trump Administration. Canada could be compelled to react with in-kind economic penalties should any restrictive initiatives become reality.
“We don’t see that as a positive for either the Canadian or American auto industry,” says Champagne, reflecting on the BAT. “With our highly integrated economies it would impact U.S. jobs. It would impact manufacturing capabilities for both the U.S. and Canada,” resulting in higher prices for vehicle and component purchasers on either side of the border.
Global implications are in play as well with NAFTA and the BAT. “Parts come from all over the world” into the two nations. For example, Mexico – the other NAFTA signatory – is also heavily involved in the continent’s automotive network.
Regarding NAFTA, Trump’s tweets seem to suggest that a mere tweaking may be in the offing. “It might modernize the agreement,” Champagne observes. “It’s hard to articulate until we know more about the tweaking,” although a sense of unease remains.
In a widely disseminated report aired by the BBC on the issue, Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Association (APMA), urged his colleagues to keep calm regarding Trump’s stance on U.S./Canada trade: “I think everybody in the industry should wait until we have something to react to on NAFTA.”