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Auto industry sees threat to profits, jobs in NAFTA revamp

Bloomberg logoBloomberg 10/12/2017 Ryan Beene

Video by Wochit

The Trump administration’s push to change the automobile rules in the North America Free Trade Agreement will lead to higher costs on manufacturers and could put jobs at risk, according to research sponsored by an auto supplier trade association.

The administration is set to seek an increase in the amount of a vehicle’s components that must come from within the region to quality for duty-free status under the pact.

But changing the so-called rules of origin would increase manufacturing costs and expose carmakers to new tariffs, leading to higher vehicle prices and lower demand for costly technology and safety features, according to research prepared for the Motor and Equipment Manufacturers Association, the auto suppliers trade group.

"Up to 24,000 jobs could be impacted, could be lost actually, if we start increasing the cost of products," Xavier Mosquet, a senior partner at the Boston Consulting Group, said at a conference for the group, citing an analysis he prepared for it.

The warnings come amid a growing chorus of automotive executives and industry groups warning that the Trump administration’s hard-line stance in talks to renegotiate Nafta could lead to negative consequences for the sector.

Charles Uthus, vice president for international policy at the American Automotive Policy Council, told the conference that Nafta has created some $10 billion in annual savings for the auto industry in North America since it took effect. Eliminating those efficiencies would amount to "essentially a $10 billion tax on the auto industry in North America," he said.

The U.S. had a $64 billion trade deficit with Mexico last year, largely thanks to a trade imbalance in autos. Trump has said reducing trade deficits is the administration’s top priority in the renegotiation of Nafta, a goal shared by the largest union for U.S. auto workers.

"No amount of spin by corporate lobbyists representing companies who outsource can change the facts on what has happened to workers as a result of Nafta," United Auto Workers President Dennis Williams said in a statement. "NAFTA renegotiation will only be successful if it leads to higher wages for workers in all three countries and puts an end to our crippling auto trade deficit with Mexico."

After repeating threats to exit the accord, Trump on Wednesday wouldn’t say how he was leaning on a Nafta deal as he met with with Canadian Prime Minister Justin Trudeau at the White House. Negotiators from Canada, Mexico and the U.S. began the fourth round of talks to revamp the trade pact on Wednesday outside of Washington.

Auto industry lobbyists and executives are paying close attention to U.S. proposals on the rules of origin for vehicles. Those rules will be a major focal point in the current round of talks. Commerce Secretary Wilbur Ross said this week the U.S. will propose a hike to rules of origin percentage, and regional procurement rules and "you’ll find that the car companies will adapt.”

Auto executives and groups have warned such changes will upset a thriving North American auto industry by burdening the complex supply chain erected around Nafta with added costs and complexity.

Stephen L. Carter is a Bloomberg View columnist. He is a professor of law at Yale University and was a clerk to U.S. Supreme Court Justice Thurgood Marshall. His novels include “The Emperor of Ocean Park” and “Back Channel,” and his nonfiction includes “Civility” and “Integrity.” 

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