Brent Snavely

Detroit Free Press

As the Trump administration prepares to renegotiate the North American Free Trade Agreement, a new study from Boston Consulting Group warns that withdrawing from the treaty would hurt the automotive industry and fail to create new jobs in the U.S.

The study, commissioned by the Motor and Equipment Manufacturers Association, found that car prices, vehicle sales, supply chain decisions, and industry employment could all be negatively affected by the proposals.

"A retreat from NAFTA would greatly impede the industry’s relatively smooth and cost-effective flow of goods across borders in North America and around the world," said Xavier Mosquet, a Detroit-based senior partner at Boston Consulting.

More:Donald Trump administration outlines new NAFTA goals

According to Mosquet, leaving NAFTA would lead to the loss of about 25,000 to 50,000 jobs at U.S. auto suppliers.

Why? Because Mosquet says ending NAFTA would result in higher vehicle prices leading to a decline in car sales and an increase in prices and that would lead to decline in parts produced by auto suppliers with plants in the U.S.

The study estimated U.S. tariffs in a range from 20% to 35% would add $16 billion to $27 billion annually to costs at automakers and their suppliers. A 20% tariff would increase the production cost per vehicle by $650.

President Donald Trump, who campaigned on the slogan "America First," has said he wants to bring back automotive jobs that have moved to Mexico. Earlier this week, the Trump administration released its negotiating priorities for talks with Mexico and Canada to negotiate a new agreement.

The Trump administration would like to complete a renegotiation of NAFTA by the end of this year, before elections take place in Mexico next year.

The Motor and Equipment Manufacturers Association and several other auto industry groups say they welcome efforts to update and modernize NAFTA but also say the industry would be harmed if the U.S. unilaterally pulled out of the trade agreement.

NAFTA, which went into effect in 1994, has been blamed for U.S. manufacturing job losses. Labor unions, including the UAW, have welcomed the opportunity to renegotiate it.

More:Unions urge worker-friendly NAFTA re-do; industry urges 'do no harm'

But Mosquet argues that the trade agreement also has made the U.S. auto industry more efficient, has paved the way for sales growth and lower vehicle prices. While most new plants built by automakers in the past 10 years have been in Mexico, Mosquet argues that has given automakers an option for low-cost production that helps North America — as a region — compete with Europe and Asia.

The study from Boston Consulting also warns against the idea of a border adjustment tax. Trump hasn't specifically endorsed the border adjustment tax but earlier this year talked about imposing a 15% or even a 30% tariff on goods from Mexico. The idea is to create a powerful incentive for automakers to bring jobs back to America that have been moved to Mexico.

The Boston Consulting study concluded that a 15% border tax would result in a net tax increase of $22 billion annually for automakers and their suppliers, and a cost increase of $1,000 per vehicle.

The auto industry has forcefully lobbied against a border adjustment tax and the idea appears to have taken a back seat to other priorities in Washington. However, Ann Wilson, senior vice president of government affairs for Motor and Equipment Manufacturers Association, said the idea could resurface in tax reform legislation or in the budget later this year.

Related:

Automakers voice opposition to Republican border adjustment tax plan

Mosquet said a border adjustment tax is unlikely to lead to “re-shoring,” or a decision by automakers and suppliers to build new auto plants in the U.S.

That’s partly because the auto industry, after seven consecutive years of U.S. sales growth, has hit a plateau and automakers and suppliers are unlikely to spend millions of dollars to build new plants right now.

“Today, we have enough capacity probably for the next 10 years,” Mosquet said. “Nobody is looking to add plants, because they know they will not need them.”

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely.