How new NAFTA deal will affect automakers
Washington — President Donald Trump and leaders from Canada and Mexico on Friday signed a new trade deal that would replace the North American Free Trade Agreement, clearing a major hurdle in Mexican politics but setting up a likely battle for U.S. congressional ratification.
The signing comes a day before the Dec. 1 inauguration of new Mexican President Andrés Manuel López Obrador, who ran a populist campaign in which he frequently used President Donald Trump as a foil. It also follows an announcement from General Motors Co. on Monday that it would idle four U.S. plants, cut 8,000 salaried employees and threaten the jobs of 3,300 hourly workers.
GM's announcement, which touched off a firestorm in Washington, raised questions about how much support the Trump administration can get for the new trade agreement from newly emboldened Democrats who will control the U.S. House in January.
The signing of the new trade agreement sets off a 60-day calendar for the Trump administration to submit to lawmakers a list of changes to U.S. law that will be required for the deal to take effect. The congressional review coincides with a legally-required analysis by the U.S. International Trade Commission of the impact of the new trade agreement on the U.S. economy, which has to be completed by March 2019.
The new deal known as the United States-Mexico-Canada Agreement — or USMCA — calls for increasing from 62.5 percent to 75 percent the percentage of a car's parts that have to come from one of the three countries to qualify for duty-free treatment. It also requires that 40-45 percent of an auto's content be made by workers earning at least $16 per hour. Vehicles not meeting the requirements would be subject to a 2.5 percent duty.
Trump has touted the agreement as a major victory for U.S. manufacturers: "Just signed one of the most important, and largest, Trade Deals in U.S. and World History," he tweeted Friday. "The United States, Mexico and Canada worked so well together in crafting this great document. The terrible NAFTA will soon be gone. The USMCA will be fantastic for all!"
Automakers feared initially that Trump would follow through on campaign promises to pull out of the NAFTA agreement completely, upending a quarter century of duty-free trilateral trading. They praised the Trump administration for negotiating a new pact that still includes Canada and Mexico, but they raised questions about Trump's decision to place tariffs on foreign steel and aluminum.
Matt Blunt, president of the American Automotive Policy Council, which lobbies for Ford, General Motors and Fiat Chrysler, said in a statement he commends U.S. negotiators for "crafting an agreement that keeps the United States and North American automotive manufacturing competitive, and for including important provisions that require the acceptance of vehicles built to U.S. safety standards and address currency manipulation."
Blunt added: "However, we remain concerned that the continued imposition of steel and aluminum tariffs on Canada and Mexico will undermine the benefits of the USMCA. We strongly encourage the parties to come to a resolution and relieve the undue burden that has been placed on U.S. manufacturers."
The USMCA contains provisions to protect up to 2.6 million cars and $32.4 billion worth of parts imported from Canada and Mexico from tariffs on imported vehicles that are being considered separately by the Trump administration.
The Trump administration has faced criticism over its trade policies since GM said it will cease production next year at its Detroit-Hamtramck and Warren Transmission plants in Michigan, at Lordstown Assembly in Ohio, at Oshawa Assembly in Ontario and at Baltimore Operations in Maryland. Work will stop next year at predetermined dates, but plants will not officially close.
The company is planning to lay off about 5,750 salaried workers next year after a buyout program last month had 2,250 takers, according to a memo sent to employees by CEO Mary Barra and obtained by The Detroit News. The salaried buyouts and the layoffs together will affect 8,000 North American employees and a number of global executives, none of whom are part of the senior leadership team.
Some House Democrats cited GM's move as they questioned the ability of the new trade agreement to prevent automakers and other companies from moving production to Mexico in search of cheaper wages.
U.S. Rep. Debbie Dingell, D-Dearborn, a member of the House Energy and Commerce Committee and former GM executive, has said she is "bound and determined" to make sure the proposed trade deal is not approved without strong protection for auto workers and other blue-collar employees.
"The administration will try to sell this deal as a win for American workers," Dingell said in a Friday statement. "If President Trump is ready to bring stability to trade policy and to craft a deal that levels the playing field and brings jobs back to our country, I’ll work with him. But signing a document simply to say the president made a deal won’t help American workers and won’t keep jobs in the U.S."
In a statement Friday, United Auto Workers President Gary Jones argued the new deal "is not strong enough ... to deter them from moving products and taking advantage of low cost labor. Unfortunately, as GM’s idling of plants in Ohio, Michigan and Maryland this week showed — the 'New' NAFTA, as it stands now, is not strong enough to protect American workers."
Independent analysts said the new deal would continue to benefit domestic automakers but cause costs and prices to increase because of tougher content rules.
"The USMCA won’t lead to major shifts in the existing production and supply chain for the industry, and that’s a good thing," Cox Automotive Chief Economist Jonathan Smoke said in a statement. "But it will prevent substantial movement away from North America and the U.S. in the future because of the added rules and the potential of a higher Section 232 penalty."
Section 232 is a rarely used trade enforcement option, which Trump used earlier this year, that gives the president the power to deal with the threat of imports on national security grounds.
The U.S. imported 2.4 million vehicles from Mexico and 1.8 million from Canada in 2017, according to the U.S. Department of Commerce's International Trade Administration. Canadian automotive parts imports to the United States totaled nearly $16.4 million in 2017, according to the ITA. Mexico exported $55.3 billion in auto parts to the U.S. in 2017, according to the agency.
John Bozzella, CEO of the Association of Global Automakers that represents foreign-based manufacturers, said in a statement that “an integrated North American automotive market has been key to the success of production in the United States,"
Bozzella said he hopes "the U.S.-Mexico-Canada Agreement will support a vibrant future auto market," but he also questioned the Trump administration's insistence on placing tariffs on foreign steel and aluminum.
“At a time when steel and aluminum tariffs have substantially increased auto manufacturing costs in the United States, it is unfathomable that this important issue has not been resolved in the context of these negotiations," he said.