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WASHINGTON: The Trump administration has set a collision course with the auto industry as it launches renegotiations of the 23-year-old North American Free Trade Agreement (NAFTA) this week, aiming to shrink a growing trade deficit with Mexico and tighten the rules of origin for cars and parts.
More than any other industry, autos have been the focus of US President Donald Trump’s anger over the NAFTA, which he blames for taking car factories and jobs away from America to low-wage Mexico.
The US had a $74 billion trade deficit with Mexico in autos and auto parts last year, the dominant component of an overall $64 billion US deficit, according to US Census Bureau data.
“The Trump administration has framed their NAFTA negotiating objectives around reducing the trade deficit with Mexico,” said Caroline Freund, a senior trade fellow at the Peterson Institute for International Economics. “If they do not touch autos, there is no way of getting at what they want.”
Among tools that US Trade Representative Robert Lighthizer may seek to boost auto employment in the US is strengthening the rules of origin to shut out more parts from Asia, and possibly an unprecedented US-specific content requirement for Mexican vehicles.
Lighthizer’s negotiating objectives for NAFTA seek to “ensure the rules of origin incentivize the sourcing of goods and materials from the US and North America,” which has raised concerns among auto industry executives and trade groups that he will seek a deal that guarantees a certain percentage of production for the US.
Several industry advocates say a better way to boost US manufacturing jobs is through policies aimed at expanding vehicle exports.
Among the other contentious NAFTA issues that US, Canadian and Mexican negotiators will tackle starting on Wednesday in Washington is the future of a mechanism for resolving trade disputes.
The US wants to eliminate a so-called “Chapter 19” provision, arguing that it fails to combat unfair subsidies of some Mexican and Canadian goods. Mexico and Canada have vowed to keep the provision.
Negotiators are expected to pursue new NAFTA chapters governing digital trade, and tightening environmental and labor standards, changes previously agreed by the three countries as part of the now-defunct 12-country Trans-Pacific Partnership (TPP).
US negotiators will also seek a provision to deter currency manipulation, aiming to set a precedent for future trade negotiations, such as a revised US-North Korean deal or a bilateral pact with Japan.
The negotiations face an extremely tight timeline, with officials saying they want to complete negotiations by early next year to avoid ratification difficulties posed by elections in Mexico in July 2018 and in the US in November 2018.
Freund, a trade economist for more than a decade at the World Bank and International Monetary Fund (IMF), said the negotiators should focus on a few key areas.
“If you really want to do a full-blown modernization of NAFTA, it is going to take a lot more than six months,” she said. “Ultimately I think they are going to get bogged down in all these details and pick two to three things and have a smaller agenda.”