Detroit automakers to VP: Retreat from NAFTA demands

Keith Laing
Detroit News Washington Bureau

Washington — Detroit automakers pressed Vice President Mike Pence on Monday to pump the brakes on proposed changes to the North American Free Trade Agreement that they say could add thousands to the cost of a car in the United States.

Pence met Monday with General Motors Co. CEO Mary Barra, Fiat Chrysler Automobiles CEO Sergio Marchionne and Ford Motor Co. Executive Vice President and President of Global Operations Joe Hinrichs in Washington. U.S. Trade Representative Robert Lighthizer and National Economic Council Director Gary Cohn also attended.

Matt Blunt, president of the American Automotive Policy Council, which lobbies for Ford, GM and Fiat Chrysler, said in a statement that automakers used the face-to-face meeting with Pence to “directly address the industry’s concerns” about the Trump administration’s proposal for increasing the minimum percentage of parts that must be made in the U.S. for a car to qualify for duty-free treatment under NAFTA.

Blunt said automakers pushed Pence to tell President Donald Trump to focus instead on boosting protections in NAFTA against foreign governments manipulating their fiscal policies to ensure the U.S. dollar trades lower against their currencies. They also said U.S. auto safety standards should be adopted by any potential U.S. trading partner.

“We believe achieving inclusion of strong and enforceable currency discipline and ensuring foreign markets accept products built to our standards are important components of a modern NAFTA agreement,” Blunt said.

Detroit carmakers referred requests for comment about the meeting to the industry group. An aide to Pence said the vice president discussed Trump’s “commitment to grow manufacturing in the United States, reduce trade deficits and strengthen the U.S. auto industry.”

U.S. negotiators have proposed increasing the minimum percentage of parts that must be made in the U.S., Canada or Mexico — from 62.5 percent to 85 percent — in order to escape tariffs when imported to this country. And they want to require that 50 percent of parts must come from the U.S. Canada and Mexico have thus far rejected what they see as hardline proposals from the U.S.

The fifth round of talks wrapped up in Mexico City last week with seemingly no light at the end of the tunnel. The three nations have pushed the deadline for hammering out a new agreement into early 2018, but hope for a deal appears to be dwindling. The next round of NAFTA talks are scheduled for Jan. 23-28 in Montreal.

Automakers have pushed back strongly against the Trump administration’s efforts to upend NAFTA provisions they find favorable. Groups that lobby in Washington for Detroit’s manufacturers and their foreign-based counterparts, as well as parts manufacturers and dealerships, banded together in a rare show of unity to form a coalition called “Driving American Jobs” to fight the Trump administration’s proposed NAFTA changes.

They say NAFTA has been integral to the car industry’s resurgence, and that abandonment of the trade agreement could have the unintended effects of killing U.S. jobs, increasing the price of cars and disrupting supply chains.

Economists disagree on the potential impact to Michigan and other auto-dependent states in the Midwest. Forecasters at the University of Michigan have estimated that Michigan would gain 6,400 jobs by 2020 in a “soft withdrawal” from NAFTA, in which Mexico and the U.S. do not place additional tariffs on each other’s exports. The economists said a “hard” withdrawal, in which the countries slap retaliatory tariffs on one another, would cost Michigan 7,000 jobs by 2020, with 3,900 of them coming from the manufacturing sector.

Gabriel Ehrlich, director of research seminar in quantitative economics at UM, said automakers would likely build more trucks domestically if the U.S. withdraws from NAFTA, but he said production of small cars now built in Mexico would likely go to Asia if tariffs are enacted.

A separate study from Fitch Ratings found Michigan would be the state most harmed by changes to NAFTA because its economy is “the most interconnected of all U.S. states with Canada and Mexico.” Michigan sends 43 percent of exports to Canada and 22 percent to Mexico, according to the study. The state received 36 percent of its imports from Canada and another 36 percent from Mexico.

Renegotiating NAFTA was a central tenet of Trump’s campaign as he promised voters he would bring back jobs. NAFTA was enacted in 1994 to create a free-trade zone between the U.S., Mexico and Canada.

On the campaign trail, Trump said he would end the trade pact with Canada and Mexico and slap a 10 percent to 35 percent tariff on vehicles and parts made in Mexico that are imported into the U.S. if NAFTA renegotiation is not a success. That could add $5,000 to $15,000 to the price of a car.

Kristin Dziczek, director of the Industry, Labor and Economics Group at the Center for Automotive Research, said the biggest impact of the U.S. withdrawing from NAFTA would likely be felt in the truck segment.

“GM, FCA, Toyota and Nissan are all exposed on that,” she said. “Toyota’s whole plan for their new plant in the U.S. was to free up space in Mexico to build more trucks. If they’re going to be paying a 25 percent tariff, they may have to rethink that.”

Without NAFTA, pickups and SUVs built in Canada or Mexico and then sold in the U.S. would be subject to a 25 percent duty imposed by former President Lyndon Johnson. Passenger cars and most other goods that are traded would be hit with a 2.5 percent tariff.