What the new US/Mexico trade pact means for cars

mexico fiat plant (Toluca)

Pushed on by Donald Trump, the United States (US) and Mexico have renegotiated their part of the North American Free Trade Agreement, with some new rules to help protect US-based auto production.

The compromise deals increases the percentage of parts that must be sourced from North America to be considered North American, from 62.5% to 75%. The extreme wage gap between the US and Mexico is addressed somewhat by the requirement that at least 40% to 45% of a vehicle is made by people paid at least $16 per hour (whether this includes benefits and taxes is unclear).

mexico fiat plant (Toluca)

While Trump had wanted the agreement to last just five years, the deal will run for 16, with a review after six years which could result in a 32-year lifetime.

Other benefits of the new deal, which has not yet been voted on by either country’s legislator, are tougher standards for intellectual property, stronger labor rules to protect Mexican workers, and rules to prevent harm from certain types of trade to wildlife, trees, and fish.  The Alliance of Automobile Manufacturers appears to approve of the deal.

Mexico has just about doubled its share of vehicles built in the US since 2007; it now stands at around 23%, while the US’ share has fallen by eight points, to 62%.

Commenting on the news, Trump threatened Canada with higher tariffs once more. The Canadian government has responded to the changing situation by joining the Trans-Pacific Partnership, along with Japan, Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam; signing a comprehensive trade agreement with the European Union; and making deals with smaller countries; and negotiating with China. Canada does around 75% of its trade with the United States.

Ram ProMasters are made in Mexico using US-built gasoline engines and transmissions

Critics of Canada’s recent dealmaking have said that the auto industry will suffer under the new deals. The Trans-Pacific Partnership eliminates Canada’s 6.1% tariff (not applicable to NAFTA trade) over the next four years, for vehicles with just 45% regional content (again, compared to NAFTA’s 62.5%). Critics have also noted the absence of serious labor-protection or environmental provisions.

In any case, Canada and the United States are generally accepted to be on the way to resolving trade issues. At the moment, the primary points of contention, at least regarding auto production, are unclear, though.

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