WASHINGTON, DC - SEPTEMBER 11: U.S. President Donald Trump speaks while meeting with FEMA Administrator Brock Long and Homeland Security Secretary Kirstjen Nielsen in the Oval Office September 11, 2018 in Washington, DC. Trump and Long warned coastal residents of North Carolina, South Carolina and Virginia to adhere to evacuation orders as Hurricane Florence approaches the east coast of the United States. (Photo by Win McNamee/Getty Images) | Win McNamee/Getty Images Trump’s new NAFTA auto rules may not boost U.S. jobs

Proposed changes to North American auto trade rules expected in the new NAFTA pact are unlikely to significantly increase U.S. manufacturing jobs or boost wages in Mexico, an analyst at the Center for Automotive Research in Ann Arbor, Mich. said.

"The big upshot is there's nothing in this agreement that looks like lots of jobs are coming to the U.S.,” Kristin Dziczek, vice president of industry, labor and economics at the auto industry think tank, said in an interview on Wednesday about the details of new U.S.-Mexico trade agreement.


“On the margin, there may be some tweaks — companies moving content [production] to the higher wage region, which is the U.S. or Canada basically. There's nothing in this agreement that raises wages in Mexico," Dziczek said.

That blunt assessment of one of the major components of the new U.S.-Mexico deal could spell trouble for President Donald Trump when he presents Congress with a fully revamped NAFTA deal.

Trump promised during the 2016 campaign to renegotiate NAFTA to bring manufacturing jobs back to United States and to level the playing field with lower-cost production in Mexico, which has seen its auto industry employment rise drastically over the past 20 years.

In a call with reporters on Monday, U.S. Trade Representative Robert Lighthizer described the U.S.-Mexico agreement as an "absolutely terrific" pact that would help reduce the U.S. trade deficit with Mexico, much of which is in autos.

“I think it's going to lead to more jobs for American workers and farmers, but also more jobs for workers and farmers from Mexico. I think it's going to modernize the way we do automobile trade,” Lighthizer said.

The new "rules of origin" would require 40 percent of cars and 45 percent of trucks be made by workers earning at least $16 per hour to qualify for U.S. zero-duty treatment under the pact. Last year, average Mexican wages for auto assembly were $7.34 per hour and just $3.41 per hour for making auto parts; the average wage for U.S. and Canadian auto sector workers was more than $20 an hour, according to a CAR report released earlier this year.

CAR’s board of directors, which includes representatives from auto and auto parts organizations, shows its close ties to the industry. But its reports on issues ranging from trade to automated cars are widely read among Washington policymakers and its conclusions about the NAFTA rule changes are likely to influence an official economic analysis that will be done by the U.S. International Trade Commission, an independent government body.

Raising auto industry wages in Mexico to an average of $16 would make it too expensive to produce cars in that country, so in cases where the new “labor value content” requirement becomes an obstacle manufacturers will likely decide just to pay the U.S. auto tariff of 2.5 percent rather than try to comply with the revised rules of origin, Dziczek said.

Automakers could also simply decide not to sell certain models made in Mexico in the U.S. market anymore, Dziczek added, noting that sales to non-NAFTA countries already account for one-third of Mexico's auto exports, up from 20 percent three or four years ago.

"Mexico and Canada have free trade agreements that reach half the global market for new vehicles without tariffs. The U.S. can reach nine percent of the global market for new vehicles without a tariff," Dziczek said. "It's convenient for them that they're on our border and that the U.S. is the second-largest market in the world. They will continue to serve that market, but they're aggressively pursuing other markets."

Dziczek acknowledged she has not yet seen full details of the U.S.-Mexico auto agreement, so her analysis is based on the fact sheet published by USTR and information she has obtained from companies.

The Trump administration has not published any estimates of how many new U.S. manufacturing jobs it expects the rule changes to create. But the USTR fact sheet does say it expect the new provisions to “incentivize billions [of dollars] annually in additional United States vehicle and auto parts production" and "close gaps in the current NAFTA agreement that incentivized low wages in automobile and parts production."

So far, union groups are reserving judgment on the U.S.-Mexico deal until more details are known and a final deal is struck with Canada.

"Any new deal must raise wages, ensure workers’ rights and freedoms, reduce outsourcing and put the interests of working families first in all three countries,” Gary Jones, president of the United Automobile Workers said in a joint statement with other union leaders.

The U.S.-Mexico agreement, which is expected to be the basis for any deal on autos with Canada, also requires 75 percent of the content of a car to be made from parts made in North America, up from 62.5 percent currently.

That could lead to higher prices for cars because of increased costs for manufacturers, Chad Bown, a senior fellow at the Peterson Institute for International Economics, said in a post on the think tank's website.

"But perversely, a second possibility is that Trump’s new regulations will be so costly that companies decide to source even less content from North America. To keep cars priced at levels consumers are willing to pay, some automakers may buy more parts from Asia or Europe, where they are cheaper," Bown wrote.

The U.S. auto industry already has the capacity to produce about 14 million vehicles, which is about 3 million more than it made last year. With U.S. demand still softening from peak 2016 levels, it’s unlikely that auto manufacturers will be building new production facilities in the United States in the near future, Dziczek said.

The American Automotive Policy Council, which represents Ford, General Motors and Fiat Chrysler, said Monday it was “optimistic that the new agreement will maintain and encourage the ongoing competitiveness of the United States and North American auto industries.” But it also stressed it would be reviewing the details to confirm its assessment.

One complicating factor is the ongoing Trump investigation of the auto industry under Section 232 of the 1962 Trade Expansion Act. That is expected to find that auto imports pose a threat to national security, and it is unclear whether Mexico and Canada could face 20 or 25 percent U.S. auto tariffs after the inquiry is completed.

Mexican Economy Minister Ildefonso Guajardo told reporters in Mexico City on Wednesday that his country negotiated a side agreement with the United States that would soften the blow of any Section 232 duties, The Wall Street Journal reported. Under that side deal, Mexico would still receive duty-free treatment for a certain volume of cars that comply with the new rules-of-origin if the duties are imposed, he said.

Guajardo declined to confirm a Mexican newspaper report that cap was 2.4 million vehicles, but he said the limit takes into account current production, new plants being built and room for growth. He told reporters Mexico currently exports 1.7 million light vehicles to the United States, but Mexico’s auto industry trade group AMIA pegs the figure at 2.33 million units, the Journal reported.

A source briefed on the side agreement told POLITICO that a certain quantity of cars above the 2.4 million unit threshold would face the 2.5 percent U.S. tariff, while any additional shipments would face whatever duties are imposed as a result of the the Section 232 automobile investigation.

Canadian negotiators are currently in town to try to wrap up a deal by Friday, when Lighthizer intends to formally give Congress 90 days‘ notice of the administration’s plan to sign a trade deal with Mexico in late November.

Administration officials have said they would include Canada in that notification if a deal is struck by Friday but would continue negotiating with them if there is not. Under the relevant U.S. law, Lighthizer does not have to publish a text of the agreement until 60 days before the pact is signed.

Adam Behsudi contributed to this report.

This article tagged under: Canada