Senate approves NAFTA replacement
Washington — The U.S. Senate on Thursday approved President Donald Trump’s replacement for the North American Free Trade Agreement, delivering a measure of trade certainty to automakers and a policy victory to Trump as the chamber prepares to begin an impeachment trial against him.
But it remains to be seen if the pact will force enough changes to shift production of vehicles from Mexico to the United States.
Hours before senators were sworn in for the impeachment trial against Trump, the U.S. Senate approved the United States-Canada-Mexico Agreement by vote of 89-10. Michigan's two senators, Debbie Stabenow of Lansing and Gary Peters of Bloomfield Township, voted in favor of the trade deal. The measure goes to the president for his signature.
Under the USMCA, automakers will have to produce cars with 75% of parts originating from the U.S., Canada or Mexico to qualify for duty-free treatment. The requirement, referred to as “rules of origin,” is an increase from 62.5% under current NAFTA rules. In addition, 40-45% of an auto's content must be made by workers earning at least $16 per hour. Vehicles not meeting the requirements will be subject to a 2.5% duty.
U.S. Senate Majority Leader Mitch McConnell, R-Ky., called the passage of the trade pact "a major step for our whole country.
"In the 26 years since the ratification of NAFTA, trade with Mexico and Canada has come to directly support 12 million American jobs," McConnell said in a speech on the Senate floor ahead of the final vote. "Twelve-million workers, and their families, who depend on robust trade with our North American neighbors."
The Trump administration has expressed optimism that the USMCA and the recent trade deal with China will spur economic growth as the president heads into a re-election battle.
"The farmers are really happy with the new China Trade Deal and the soon to be signed deal with Mexico and Canada, but I hope the thing they will most remember is the fact that I was able to take massive incoming Tariff money and use it to help them get through the tough times!," Trump tweeted Thursday morning.
"Whatever lingering fears anybody might have had about a recession, very hard to imagine a recession occurring in the face of these two trade deals," U.S. Commerce Secretary Wilbur Ross added in an interview with Fox Business. "Adding together USMCA and the China deal, that's over $2 trillion of trade. That's an enormous number."
Automakers and groups that lobby for the industry in Washington hailed passage of the USMCA, saying free trade with Canada and Mexico are vital to Detroit manufacturers' ability to compete in the international market.
Ford Motor Co. said in a statement: "We’ve long supported this trade pact, which takes strong actions to address currency manipulation and requires the auto industry as a whole to increase their investments in research, development and operations in the U.S."
General Motors Co. also said it was pleased with the deal.
"The agreement is vital to the success of the North American auto industry," said Jeannine Ginivan, a spokeswoman for GM, in a statement Thursday."... The certainty that comes with having this strong and modern agreement in place is welcome news and we look forward to working with all three governments on its implementation."
Matt Blunt, president of the American Automotive Policy Council, which lobbies for Ford, General Motors Co. and Fiat Chrysler Automobiles, said the revised trade pact is "a 21st-century trade agreement that includes vital components to address currency manipulation and the acceptance of vehicles built to U.S. regulatory standards.
"This trade agreement will serve as a model for future trade agreements, and help grow the U.S. economy as a whole, especially the auto sector and its manufacturing supply chain," he said.
Charlie Gilchrist, chairman of the National Automobile Dealers Association, said the pact will reduce the threat of additional, broad-based tariffs on vehicles and parts produced in North America.
The labor provisions are an attempt to boost U.S. jobs, but it remains to be seen if automakers that have gravitated to lower wages in Mexico will decide if they can profitably return more production stateside.
Mexico says that about 30% of its current auto production would not conform to the new rules, but the country has not specified which rules would not be met. Industry observers expect some models that have low domestic sales volume or are too costly to bring into compliance will be withdrawn from the U.S. market.
The vast majority of U.S. and Canadian production is expected to conform to the rules within a three- to five-year transition period, the Ann Arbor-based Center for Automotive Research forecasts.
Charlie Chesbrough, senior economist and senior director of industry insights for Cox Automotive, believes changes in the content requirements and hourly wage rules should increase U.S. production. "However," he said, "the broader vehicle market is slowing, so potential gains may be offset."
"There have been years of uncertainty and potential disruption, and long-term planning has been challenging," he said. "The rules are now established and companies can now start developing their supply chains for the future."