Forget Trump Propaganda: Experts Say New trade deal unlikely to boost automotive production, jobs in U.S.
(too old to reply)
2018-10-08 15:04:28 UTC
October 07, 2018 12:01 AM
Experts: New trade deal unlikely to boost automotive production, jobs in
Dustin Walsh

Overseas firms may find it easier to pay up for not meeting standards or
stop serving U.S. market
Only three vehicles imported to the U.S. are between old and new content
Math also unlikely to add up to force increase in wages

The deal's stricter automotive import requirements are designed to steer
production to the United States, but firms may find it easier to pay World
Trade Organization-dictated tariffs, or stop serving the U.S. market,

White House officials are calling the new North America trade deal, the
U.S.-Mexico-Canada Agreement, a paradigm-shifting model for American trade

Speaking about the deal last week in Washington, D.C., President Donald
Trump said foreign companies should consider it "a privilege to do business
with us." The administration considers the trade deal, which includes
stricter automotive import requirements, a huge win in steering
manufacturing back into the U.S.

But some experts question whether the updates and a name change to the
original North American Free Trade Agreement will result in increased
production in the U.S. and jobs creation.

The pact, which Canada and U.S. trade negotiators agreed to last week with
Mexico already in tow, calls for increased automotive content from the
member countries to pass tariff-free into the U.S., a quota in imports to
the U.S. from Mexico and Canada and a minimum wage requirement designed to
make manufacturing in the U.S. more attractive.

The goal of the Trump administration was, of course, to make America first,
but no one is sure just who in America is better served.

"The whole situation just doesn't add up," said Catherine Karol, counsel
for Detroit-based law firm Butzel Long PC, who spent 38 years in the legal
office at General Motors Co. "This is really just going to raise costs for
automakers and suppliers and those costs get passed down to the consumer
eventually. An increase in car prices means a decrease in car sales and,
therefore, a decrease in jobs. It's hard to see how this translates to jobs
growth in the U.S."
Big changes for cars

The agreement calls for upping auto parts content made in North America to
75 percent from the current 62.5 percent, starting in 2020. This means 75
percent of the parts of every car and truck sold in the U.S. must come from
the U.S., Canada and Mexico.

Roughly 30 percent of the 2.33 million vehicles imported to the U.S. from
Mexico in 2017 don't meet the current 62.5 percent content requirement,
Mexican Economy Minister Ildefonso Guajardo told Bloomberg TV in August.
But only three vehicles imported to the U.S. — Nissan Versa, Audi SQ5 and
the Fiat 500 — are above that 62.5 percent threshold and below the new 75
percent requirement. Those three vehicles sold a combined 177,097 units in
the U.S. last year, according to Mexican manufacturing publication

Kristin Dziczek, vice president of industry, labor & economics at the
Center for Automotive Research in Ann Arbor, said the cars that don't meet
this standard are far more likely to simply pay the standard World Trade
Organization-dictated tariff than move production to the U.S., because it's
simply more economical, or they'll just stop serving the U.S. market.

"I think there will be cars that come from Mexico that just pay the 2.5
percent tariff because they already do," Dziczek said. "Or they just go
away. Is the U.S. consumer really going to miss the Nissan Sentra or the
Volkswagen Golf? Mexico is still a great export base for the rest of the
world and margins are already slim in a competitive market, so they'll just
sell those vehicles elsewhere."

Mexico currently has free trade agreements with 46 countries, compared with
just 20 for the U.S., allowing it greater access to the world market.

To combat auto manufacturers from dumping more production into low-cost
Mexico to meet the new content requirement, the White House added another
wrinkle by requiring that cars and trucks have at least 30 percent of the
vehicle production from workers making at or above $16 per hour, going up
incrementally to 40 percent by 2023. This requirement is a shot at
manufacturing in Mexico, where the average wage for auto assembly workers
is $7.34 per hour and $3.41 per hour for parts supplier workers, compared
to $29.08 per hour and $19.84 per hour in the U.S., respectively, according
to research by the CAR.

But, again, the math doesn't add up to move production. It's still more
likely manufacturers would opt to pay the 2.5 percent WTO tariff for
importing into the U.S. than raise the wages of its assembly workers in
Mexico by nearly 300 percent, Dziczek said. And many already meet that
requirement, she said.

"Many automakers that produce in the U.S. and Canada can reach the $16 per
hour requirement within their own four walls," Dziczek said. "The companies
that have a problem will work with their supplier base to make the math
work and then there's the question of who's going to police this? How do
they certify it? What do they prove it? It's a complicated calculation that
involves credits for domestic research and development and averaging across
class, model and plant."

Some experts, off the record, joke that jobs creation from the deal will
come from an increase in government regulators to ensure the industry is
following the rules.
Import quotas

Another tactic to protect U.S. production in the deal is the establishment
of an import quota on Canada and Mexico. Parts made in Canada can be
imported to the U.S. tariff-free, as long as they meet content and wage
rules, until the total reaches $32.4 billion annually. Same for Mexico up
to $108 billion annually. However, the quotas are potentially meaningless
as U.S. auto sales peaked at record levels the last few years and only $75
billion in parts were imported from Mexico last year and $23 billion from

Car imports from Canada and Mexico will also face a quota of 2.6 million
units for each country. Last year, Canada exported 1.8 million units to the
U.S. and 2.3 million from Mexico.

This does, theoretically, prevent a massive increase in production in those
countries for the U.S. market, but the quotas are unlikely to increase
production in the U.S.. Cars sales in the U.S. peaked at 17.5 million units
in 2016, a record year. But much of the car sales are tied to people
finally getting into a new vehicle post-recession, Dziczek said. It's
unlikely U.S. car sales will reach that pinnacle again anytime soon. Sales
are expected to settle around 17 million units this year.

"It's the wrong part of the business cycle for anyone to be doing a lot of
investment or expanding jobs in the U.S.," Dziczek said. "Investment went
to nearly nothing in 2015, before anyone knew who the president was going
to be, because the cycles are predictable."

There was a big win for autos importing to the U.S. from Canada in that
they will be spared Trump's threatened 25 percent global tariffs on cars,
trucks and parts thanks to a side-letter agreement between the nations,
Reuters reported. Under the guise of a national security threat, Trump
instructed the Commerce Department to trigger a Section 232 investigation
to see if auto imports threatened the security of the country. The final
report is expected in February.

The administration, however, is continuing to threaten imports from the
European Union and Japan with those national security tariffs as they begin
new trade negotiations. But if it becomes much more expensive to import
cars from Germany or Japan, automakers in those countries could increase
investment in Canada or Mexico instead of the U.S. to get around that
tariff, creating jobs there and not here.

"No one is going to make any investments until they see where the 232s
land," said Peter Nagle, senior automotive economist for North America
light vehicle sales forecasting for Southfield-based IHS Markit. "Maybe
this (USMCA) trade deal sparks some investment, but it will take the 232
sanctions to create an impetus to invest. Until that happens one way or
another, everything from jobs and investments is on hold."

Mr. B1ack
2018-10-08 21:05:40 UTC
The old arrangement was definitely not gonna boost
US auto jobs.

The new deal MAY boost them - no promises, it all
depends on the marketplace.

So ... I'd rate "MAY boost" over "definitely not".
Dhu on Gate
2018-10-09 00:08:22 UTC
Post by George
White House officials are calling the new North America trade deal, the
U.S.-Mexico-Canada Agreement, a paradigm-shifting model for American trade


GET Yers 2DAY!!!

This was a label change so Drump could slap his dick-print on it.

Mushrooms, anyone?

Je suis Canadien. Ce n'est pas Francais ou Anglaise.
C'est une esp`ece de sauvage: ne obliviscaris, vix ea nostra voco;-)