Renegotiating Nafta: Trump's trade moves put US auto industry in a fix

US President Donald Trump frequently talks about reviving the American auto industry, but his approach to trade policy may backfire on the country’s carmakers. 

 Trump’s efforts to renegotiate the North American Free Trade Agreement (Nafta), to impose tariffs on imported aluminium and steel and to reduce America’s trade deficit with China could limit the reach of companies that produce cars in the US and depend on access to growing markets outside the country.

On Friday, the chief executives of the biggest automakers plan to meet with the president at the White House. The gathering comes at a critical moment, as Trump administration officials race to finalise a Nafta rewrite in the next few weeks and prepare to meet again next week with Chinese leaders in hopes of forestalling a potential trade war.

The auto industry is among the sectors most vulnerable to trade disruptions because its business model is increasingly global, in terms of both production and sales. One in five cars made in the US is now exported, and one in four vehicles sold in America were produced in factories run by foreign-owned companies. General Motors sold nearly 1 million vehicles in China in the first quarter of the year — more than it sold in North America in the same period.

In the last two decades, US automakers have set up plants in Canada, China and Mexico, and they routinely import car parts from other countries. Mexico has added hundreds of thousands of auto-making jobs since Nafta’s enactment in 1994, while the US has lost hundreds of thousands.

Labour groups and administration officials are hopeful that the trade moves will change incentives to encourage domestic and foreign-owned carmakers to manufacture more of their vehicles in the US. But industry representatives warn that proposals now being championed by the Trump administration could have the opposite effect, raising the prices of American-made cars and trucks, reducing vehicle sales and potentially choking off access to China, the world’s fastest-growing market for automobiles.

“There are so many fronts open that introduce risk into the autos’ business, and the suppliers’ business, that I don’t know how you do any business planning at all right now,” said Kristin Dziczek, vice-president for industry, labour and economics at the Center for Automotive Research in Michigan. “They’re playing with big money and big risk and big companies that employ a lot of people.” 

The biggest risk may relate to the rewriting of Nafta, a drawn-out process beset by disagreements between Canada, Mexico and the US, and punctuated by Trump’s repeated threat to withdraw from the deal if it is not revised in America’s favour. Those threats have spooked automakers, whose fortunes are closely tied to the ways the accord has allowed them to reduce the cost of production and parts.

©2018 The New York Times News Service