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Washington — President Donald Trump announced a trade deal with Mexico on Monday that would increase the percentage of a car's parts that must be built in either nation to qualify for duty-free treatment.  

Under the preliminary agreement, which Trump plans as a replacement for the  North American Free Trade Agreement, the so-called domestic content requirement for cars would increase to 75 percent from 62.5 percent.

The Trump administration had pushed to boost the requirement to as high as 85 percent, and add a 50 percent U.S. mandate, but Mexico and Canada balked at those proposals and automakers vocally argued against them. 

Additionally, under the new agreement, 40-45 percent of an auto's content will have to be made by workers earning at least $16 per hour. Any changes to NAFTA, or effort to end the original agreement, would require congressional approval. Canada has also yet to sign off the proposed changes. 

Investors welcomed the news, bidding shares in automakers and their suppliers higher because the moves signaled an easing of trade tensions weighing on the industry — even if details, and Canada's role in the talks, have yet to be defined.

Trump said he plans to ask Congress to terminate NAFTA in favor of the new deal with Mexico, although doing so also would require approval from lawmakers. 

"I will terminate the existing deal," he said in remarks delivered from the Oval Office. "When that happens, I can't quite tell you; it depends on what the timetable is with Congress.  But I'll be terminating the existing deal and going into this deal." 

Earlier in Trump's remarks, he said the preliminary agreement with Mexico is a "big day for trade" and a "big day for our country," even as he expressed uncertainty that Canada will also sign off on the deal. 

"A lot of people thought we’d never get here because we all negotiate tough," Trump said. "We do, so does Mexico. This is a tremendous thing." 

"They used to call it NAFTA," the president continued. "We’re going to call it the United States-Mexico Trade Agreement. We’re going to get rid of the name NAFTA. It has a bad connotation because the United States was hurt very badly by NAFTA for many years. And now it’s a really good deal for both countries and we look very much forward to it." 

U.S. Trade Representative Robert Lighthizer said the Trump administration is planning to submit the proposed agreement with Mexico to Congress on Friday, touching off a 90-day review process. The earliest the deal could be ratified is November. 

Trump said he also is planning to re-engage Canada, which has largely sat out the most recent NAFTA talks, to see if the deal with Mexico could be made into a trilateral agreement.

"Canada will start negotiations shortly," Trump said. "I'll be calling the prime minister very soon. And if they'd like to negotiate fairly, we'll do that. You know they have tariffs of almost 300 percent on some of our dairy products, so we can't have that. We're not going to stand for that." 

Trump floated the idea of placing tariffs on cars that are made in Canada — presumably including models assembled there by Detroit's three automakers — if the country does not accept the terms that were agreed to between his administration and Mexico. 

"I think with Canada, frankly, the easiest thing we can do is to tariff their cars coming in," he said. "It's a tremendous amount of money, and it's a very simple negotiation. It could end in one day and we take in a lot of money. But I think we'll give them a chance to probably have a separate deal. We could have a separate or we could put it into this deal."  

Automakers, accustomed to the three-way trade pact that is now 24 years old, urged the U.S. and Mexico to bring Canada back into the fold quickly. 

“NAFTA required modernization,” Ford Motor Co. CEO Jim Hackett told The Detroit News. “We were in favor of updating it, and I think we ended up in a really good place for our industry. Every player in the industry’s got a little different twist on the impact. The nature of the way that trade agreement works we need Canada, and it’s my belief that settling with Mexico will help them want to join in on terms that they can accept.”

The Alliance of Automobile Manufacturers, which lobbies for both domestic and foreign manufacturers, added in statement: "The industry is hopeful that any changes to NAFTA auto rules of origin continue to strike the right balance by incentivizing production and investment in North America while keeping new vehicles affordable for more Americans." 

Automakers have balked at previous proposal that called for increasing the percentage of a vehicle's parts and components that come from North America to achieve duty-free status under NAFTA. 

John Bozzella, president of the Association of Global Automakers, which lobbies for foreign-owned automakers, said in a statement that any replacement for NAFTA "must ensure the U.S. auto industry remains competitive without risking investments, innovation and U.S. jobs.

"It is unclear how withdrawal from NAFTA will do that," Bozzella said. "Canada’s participation is crucial, and we continue to urge all three governments to modernize NAFTA in ways that benefit American autoworkers and consumers.”

Michelle Krebs, senior analyst for Autotrader, said the trade uncertainty has hampered automakers' ability to do the type of long-term planning that is necessary in an industry that is known to require long lead times. 

"Companies I suspect have postponed decisions about products and plants as far as they will place them," she said. "Right now they're looking at what vehicles they'll be building in four years. They would like to nail those things down and know what the rules of the road are going to be." 

The United States has pushed for wholesale changes to NAFTA, enacted in 1994 to create a free-trade zone between the U.S., Mexico and Canada. Administration officials say terms of the deal have allowed trade deficits with neighboring countries, especially Mexico, to balloon.

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. Critics have said that could add $5,000 to $15,000 to the price of a car.

Alan Deardorff, professor of public policy and economics at the University of Michigan, said the U.S.'s effort to negotiate directly with Mexico likely succeeded "because of the asymmetric power dynamic between them.

"I assume the thinking is get whatever agreement you can with Mexico, and then you can say to Canada 'take it or leave it,'" he said of the Trump administration's likely strategy. "Canada may accept it, but it depends on what's in the agreement." 

Kristin Dziczek, vice president of the Center for Automotive Research, said it is unlikely that the deal between the U.S. and Mexico would be approved on a bilateral basis. 

“I don’t think anybody is at rest until there are three parties at the table," Dziczek said. "A U.S.-Mexico deal with these thresholds will be very difficult to meet. I don’t see how this works as just a deal between the U.S. and Mexico, especially with those labor content rules.”

It appears this deal could shield Mexico from potential import vehicle tariffs under Section 232 of the Trade Expansion Act, which also would be an important bargaining chip for Canada. If there ends up being a three-way deal that exempts both Canada and Mexico from the 25 percent tariffs, that would mean the tariffs would be applicable to only roughly 20 percent of vehicle imports into the U.S., Dziczek said.

Still, she said, it’s likely these new requirements — particularly in conjunction with 232 vehicle tariffs — would reduce consumer choice and raise prices on vehicles. The uncertainty has left the auto industry in a lurch. The number of vehicles facing potential tariffs if NAFTA falls apart is huge:

General Motors Co. imported 1,077,865 vehicles built outside the U.S. in 2017, including 322,144 from Canada and 577,630 from Mexico, according to LMC Automotive, which forecasts automotive sales, production and powertrain trends. 

Fiat Chrysler Automobiles NV imported 1,024,734 vehicles, including 448,172 from Canada and 417,660 from Mexico. And Ford Motor Co. imported 521,226 vehicles, including 199,117 from Canada and 283,259 from Mexico. 

NAFTA talks recently have appeared to take a back seat as the Trump administration moved to initiate tariffs on foreign steel and aluminum and a host of other Chinese and European products. The administration also has launched an investigation of the possibility of imposing tariffs on imported cars under the guise of national security. 

Negotiations with Canada and Mexico fell off the political radar in Washington so much that groups that lobby for automakers issued a press release last month urging "a renewed focus" on the NAFTA negotiations. 

"As a new government forms in Mexico" on Dec. 1 "we believe now is the time for all parties to return to the negotiating table with a renewed commitment to the modernization of a cohesive three-country NAFTA agreement," the industry lobbyists said in joint statement. The signatories included Association of Global Automakers; the American Automotive Policy Council, which lobbies for Detroit manufacturers; the Alliance of Automobile Manufacturers, which lobbies for both domestic and foreign manufacturers; and their counterparts in Canada and Mexico.  

klaing@detroitnews.com

(202) 662-8735

Twitter: @Keith_Laing

Daniel Howes and Nora Naughton contributed. 

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