Donald Trump’s pledge to revise or exit the North American Free-Trade Agreement may not be as job-friendly as the president-elect thinks.
A new study by the Ann Arbor-based Center for Automotive Research warns that a U.S. withdrawal from the 23-year-old NAFTA, or the implementation of what Trump calls “a big border tax,” could “result in the loss of at least 31,000 U.S. automotive and parts jobs.”
It says, “Any move by the United States to withdraw from NAFTA or to otherwise restrict automotive vehicle, parts and components trade within North America will result in higher costs to producers, lower returns to investors, fewer choices for consumers and a less competitive U.S. automotive and supplier industry.”
That conclusion is not likely to be popular with Team Trump or his many voters in the industrial heartland. They blame job losses and plant closings on the three-way pact signed into law by President Bill Clinton and supported since by both Republican and Democratic administrations.
It’s not that simple. The contraction of Detroit’s employment, plant networks and product lines, crystallized by the global financial meltdown nearly a decade ago, owe as much to a legacy of mediocre products and debt-laden operations as they do trade agreements.
Times have changed, mostly for the better. Detroit’s three automakers employ fewer people and operate fewer plants, but their financial strength, product quality and efficiency now vie with the world’s best, despite a generation-old free-trade pact with Mexico.
CAR’s take suggests some of that progress could be imperiled by tariffs or abandoning NAFTA. Because of the comparatively higher labor costs of U.S. production, the study warns that withdrawal could cause automakers and suppliers to shift global production strategies from “near-shoring” in Mexico to “off-shoring” manufacturing to China and elsewhere.
It warns that China and the European Union could displace the United States as the global industry’s de facto regulatory trend-setter and prompt global automakers to orient emissions, environmental and safety protocols away from U.S. standards.
And southeast Michigan, it argues, would be hit especially hard: “Mexico and Canada are the top foreign markets for Detroit exports. Detroit’s exports to Mexico are greater in both absolute values and in share that those of any other U.S. city.
“Michigan’s high concentration of engineering and automotive-related employment could be at risk to foreign countries if production shifts outside the NAFTA region. China, South Korea and Japan could replace Canada and Mexico to be the U.S.’s largest automotive parts importers.”
That’s probably not what the president-elect had in mind when he used his news conference Wednesday to tout “a big, big factory” from Fiat Chrysler Automobiles NV and Ford Motor Co.’s decision to cancel construction of a new assembly plant in Mexico.
“I appreciate that from Ford,” Trump said. “I appreciate it very much from Fiat Chrysler. I hope that General Motors will be following and I think they will be. I think a lot of people will be following. I think a lot of industries are going to be coming back.”
We’ll see. Ford still plans to assemble its compact cars at its plant in Hermosillo, Mexico. GM says it will not reverse its decision — made nearly four years ago, according to a ranking executive — to assemble Chevrolet Cruze hatchbacks in Mexico for sale in the United States. And FCA’s move to invest $1 billion in plants in Michigan and Ohio to build next-generation Jeeps has been years in the making.
Trump’s targeted tweets are causing headaches for CEOs hungry for stability and clarity. But the sentiments animating the president-elect are not lost on automakers foreign and domestic whose leaders are keenly aware their U.S. investment decisions are viewed through a political prism.
The “big border tax” of Trump’s imagining would impact more than vehicles assembled in Mexico and shipped to U.S. showrooms. CAR says “many parts and components cross the U.S.-Mexico border multiple times before being installed at a final assembly plant in either country for sale in the United States.
“Taxing these parts at each border crossing would multiply the impact of the tariff. Limiting the flow of vehicles from Mexico into the United States will not automatically create the replacement manufacturing capacity for those vehicles. Canada serves as an obvious likely replacement source of capacity” — especially when the Canadian dollar stays comparatively weak.
Trump’s Build America rhetoric, enforced by tweets of his own making, is headed for a reckoning. It just may not be what the new boss has in mind.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.