The United States, Mexican and Canadian trade officials are once again renegotiating the North American Free Trade Agreement (NAFTA), with this being their seventh round of talks in the last six months. There is some progress being made, but some of the main sticking points involve the auto industry.
Currently, under NAFTA, 62.5 percent of a vehicle must be made in the U.S., Mexico and/or Canada. As long as that requirement is met, the vehicle qualifies to be free from taxes and tariffs.
President Trump wants to change that number to 85 percent. Also, the administration wants 50 percent of the vehicle to be made in the U.S. This causes a lot of trouble for many automotive companies.
One of the companies that it affects is Fiat Chrysler, a truck, SUV and minivan company. The problem is that it is both an American and a European company. “I sincerely hope that some of the demands that are being pushed by the U.S. administration are going to be retuned,” said Fiat Chrysler CEO Sergio Marchionne.
On the other hand, there are companies such as Ford. Ford is the most American car company, in terms of cars sold and content that comes from the U.S. “Eighty percent of Ford vehicles sold in the U.S. were assembled in the U.S,” said Joe Hinrichs, Ford’s head of global operations. So this change won’t affect them nearly as much as companies like Fiat Chrysler.
If these changes go into effect, the cost of the cars that are exported out of the United States will most likely cost more than ones that are manufactured in another country. Jim Lentz, Toyota’s North American CEO, puts this into perspective, saying, “Russia is going to say, do I want to buy a Toyota Highlander coming out of the U.S.? Or maybe it’s less expensive to buy it out of another plant coming out of China.”
If this is the case, Trump’s idea that changing this will cause for jobs to come into the United States is wrong and it will do the complete opposite.
As the renegotiations come to a close, there will be a change in the automotive industry. Whether it is going to benefit the United States will come down to how large that percentage that needs to be made in North America is.
