The U.S. automotive industry is watching the ongoing renegotiation talks between the U.S., Mexico and Canada over the North American Free Trade Agreement (NAFTA) with trepidation. President Donald Trump made reforming or abandoning the 24-year-old agreement a key part of his presidential campaign, and the administration’s demands of its trading partners could very well sink the agreement.
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Industry groups estimate that abandoning NAFTA and reverting to World Trade Organization tariff levels would cost the auto industry $10 billion per year and the loss of 50,000 U.S. auto parts jobs.
Talks stalled after the most recent round of talks in Montreal, in part because of the U.S. requirement that the North American (and United States) content of cars be raised substantially. The looming presidential election in Mexico on July 1 could further complicate negotiations.
The Trump administration wants the requirement for the value content of automobiles sourced from NAFTA countries to rise to 85 percent (up from 62.5 percent) for tariff-free trade, and that 50 percent of every vehicle produced in the region must come from the United States. U.S. parts content currently averages 30 percent.
Both Canada and Mexico have rejected the 50 percent content requirement, and automakers have balked at what would represent a costly and unprofitable restructuring of their entire supply chains.
“We’d argue the current [rules of origin] work,” says Matthew Blunt, president of the American Automotive Policy Council (AAPC) and former governor of Missouri. “The 62.5 percent regional value content requirements are the highest of anywhere in the world, and struck the right balance. What the administration proposed is not just difficult, but impossible to comply with. There is not a single product built anywhere in North America today that would meet the requirements of the U.S. proposal. It would drive investment outside the U.S., and actually achieve the opposite of what the administration is trying to do.”