WASHINGTON — Negotiators from the U.S. focused much of their effort in reworking the North American Free Trade Agreement on provisions affecting auto manufacturing, touting the final deal with Canada and Mexico as a boon to domestic carmakers and their employees.
“Once approved, this will be a new dawn for the American auto industry and for the American autoworker,” President Trump declared in announcing the accord on Monday. His chief trade negotiator, Robert Lighthizer, singled out the new auto rules, saying they are “really going to bring back jobs to America.”
But as innovative and substantial as the changes are, experts said the amendments in the new U.S.-Mexico-Canada Agreement — specifically a new minimum-wage requirement for some workers and an increase in the North American-produced content of vehicles necessary for tariff-free trade — will provide only a limited increase in U.S. production and employment in the foreseeable future. About 952,000 U.S. workers are employed in manufacturing automobiles and parts.
Most of the major automakers, both domestic and foreign, will be able to meet the higher rules of origin with a bit of mixing and shifting where they now assemble cars and trucks, engines, transmissions and other parts.
That will be harder to do for a few automakers like Volkswagen, which has put much of its investments in Mexico, where wages are much lower. And new rules that auto producers must source 70 percent of steel and aluminum from North America will force Hyundai to rethink its current practice of importing steel from South Korea.
Even then, the new auto rules won’t fully take effect until 2023, allowing companies to gradually make adjustments.
“When we look at that phase-in period, it’s something that doesn’t necessarily scream out that we’re going to see a massive increase in U.S. assembly or parts,” said Jeff Schuster, president of global vehicle forecasting at research firm LMC Automotive. “On the surface, this isn’t something that’s going to cause a massive shift, in our opinion, to the U.S. I think it will be more of a subtle shift.”
Automakers and experts are poring over the details in the 1,168-page text, released after an eleventh-hour agreement with Canada late Sunday allowed the negotiations to meet a U.S.-imposed deadline. U.S. officials were in contact with automakers as they negotiated the deal and the early reaction from the industry has been positive.
“These changes are pretty clever and have the potential, on paper, of increasing the U.S. and Canadian share of North American production and somewhat decreasing Mexico’s,” said James Rubenstein, a Miami University professor of geography who has written extensively on where and how cars are made. “But I think these are marginal changes that might affect individual carmakers rather than the industry as a whole.”
In the new pact, 75 percent of a vehicle’s content would have to be produced in North America to qualify for tariff-free trade among the three countries. That’s an increase from NAFTA’s 62.5 percent level.
Another key provision in the proposed U.S.-Mexico-Canada agreement adds a requirement that 40 percent to 45 percent of a vehicle’s content must be produced by workers making at least $16 an hour. That also would be phased in over several years. Analysts said most carmakers would not have trouble meeting that, although VW, Nissan and some others with large Mexican operations could find it more challenging.
James Rubenstein, a Miami University professor of geography who has written extensively on where and how cars are made, called the changes “pretty clever” and said they “have the potential, on paper, of increasing the U.S. and Canadian share of North American production and somewhat decreasing Mexico’s.”