President Trump has focused much of his policy agenda on trade issues that have could have far-reaching implications for the U.S. automotive industry. The President’s Executive Order on January 23, 2017—Trump’s first business day in office—pulled the United States out of the Trans-Pacific Partnership trade agreement, and set the tone for his Administration’s tough stance on trade issues.  The President has issued numerous Executive Orders with regard to trade, and announced he would renegotiate the 23-year-old North American Free Trade Agreement (NAFTA) with Canada and Mexico.  However, the two Presidential Executive Orders issued on April 20th and 27th that direct the Secretary of Commerce to investigate steel and aluminum imports and threats to national security could be more significant to the U.S. auto and parts industries. Section 232(b) of the Trade Expansion Act of 1962 allows the President to invoke national security as a reason to limit specific imports by means including quotas and surcharge tariffs. Given the auto industry’s use of imported steel and aluminum, a national security finding could raise the cost of these inputs for automakers and parts producers. While companies or countries affected by these measures could file a complaint with the World Trade Organization (WTO), the international body has never overturned claims of national security protection.

The North American automotive industry does not just trade within the NAFTA region, the supply chains are deeply interlinked and the countries are interdependent in light vehicle and parts production. In 2016, U.S. vehicle exports to Canada and Mexico comprised 40 percent of total U.S. light vehicle exports, and these two countries represented half of all light vehicle imports. That same year, Canada and Mexico made up 75 percent of U.S. motor vehicle parts exports, and 51 percent of U.S. parts imports. Changes to NAFTA could significantly change the structure of the North American auto industry.

NAFTA Renegotiation Factors

U.S. Trade Representative Lighthizer’s 90-day letter to Congress invokes the Administration’s aim of supporting higher-paying U.S. jobs by modernizing NAFTA. In particular, the letter cites addressing digital trade, intellectual property protections, regulatory, services, labor, and environmental protections among the key objectives of the negotiations. Rules of Origin (ROO) are expected to be addressed in the negotiations, and that could mean raising the ROO target above the current 62.5 percent NAFTA-originating content or adding to the tracing list—or both. In terms of positioning, both Canada and Mexico are relatively stronger economically than they were in the 1990s when NAFTA was first negotiated. Both countries…

  • Have been meeting with their stakeholder groups for months and are ready to negotiate.
  • Are less reliant on the U.S. market since they have ambitiously pursued trade diversification: the United States can reach 9 percent of the global market for automobiles tariff-free, whereas Canada can reach 24 percent and Mexico over 50 percent of the market.
  • Favor a tri-lateral agreement, while the United States has not settled on retaining NAFTA’s tri-lateral structure.
  • Play critical roles in helping to secure the U.S. borders.

At a recent Industry Briefing for CAR Affiliates, John Bozzella, president and CEO of Global Automakers emphasized,  “The new Administration has the auto sector top of mind and as critical policies are negotiated it is important to recognize that today’s U.S. auto industry consists of a diverse group of manufacturers,” The North American automotive industry has a great deal at stake in the NAFTA renegotiations; decisions made in modernizing NAFTA could affect the industry for the next 25 years—or even longer. According to Bozzella, “Decisions made will not only reshape our industry but also impact the U.S. economy, so it is important that we get it right.”

NAFTA Renegotiation Timeline

The process of renegotiating NAFTA was set in motion with a letter to Congress on May 18, 2017, that laid out the Administration’s broad priorities and objectives for the trade deal. This letter starts the clock for the 90-day period for the Administration to consult with Congress and key U.S. stakeholders in the negotiations that end on August 16, 2017. The Administration must secure Trade Promotion Authority (“Fast Track”) from Congress that provides the President with the authority to negotiate on behalf of the United States. Fast Track means the U.S. Congress must approve the agreement without amendment or filibuster in order for NAFTA to become law. Thirty days prior to the commencement of negotiations with Canada and Mexico (by mid-July), the President must publicly disclose the Administration’s negotiating objectives.

Once talks are underway, the negotiation team (led by Secretary of Commerce Wilbur Ross and U.S. Trade Representative Robert Lighthizer) must continue to consult with the House and Senate Advisory Groups. Once the renegotiated NAFTA is agreed upon by the three countries, the Congress must vote within 90 days to approve it.

Further complicating the timing is Mexico’s Presidential elections which take place in July 2018.  This will drive the negotiators to try to wrap up the new NAFTA agreement by the end of 2017. If talks drag on into 2018, the parties run the very real risk of Mexico not agreeing to the deal negotiated by that country’s previous President.

The status of these trade negotiations will take center stage this summer at CAR’s Management Briefing Seminars, July 31-Aug.3, with a panel of experts discussing the most up to date developments, and the potential impact to automakers, suppliers and the economy.  Take part in the latest discussion with up to date news and analysis of these important negotiations at CAR MBS, July 31- August 3.

Take part in the latest discussion with up to date news and analysis of these important negotiations at CAR MBS, July 31- August 3.