The automotive industry in North America is one of the success stories of the North American Free Trade Agreement (NAFTA). The elimination of duties and easing of cross-border trade that NAFTA wrought has increased efficiencies in the automotive sector, leading to lower costs and ease of commerce across a well-integrated, North America-wide supply chain.
What could change?
The change in administration at the White House, however, is very likely to lead to changes in trade relations among the three NAFTA countries. President Trump has made clear his intention to keep jobs in America and source American products as much as possible.
Trump has targeted the reduction of the U.S.’s trade deficit with Mexico as one of his prime objectives: the value of which was $55.6 billion in 2016 – due in large part to the U.S.’s trade deficit in autos and auto parts.
Changes to NAFTA affecting the auto industry will have far-reaching impacts to importers, exporters, carriers and brokers across North America.
What would it mean?
If Trump seeks a deal that guarantees a certain percentage of production for the U.S., this could disrupt a complex supply chain that sees parts crisscrossing NAFTA borders and has made North American car production competitive with Asia and Europe.
There’s also a risk that changes could make North American producers less competitive, or even motivate them – as well as overseas suppliers – to choose to pay a tariff rather than follow the complicated new rules – meaning higher costs that would ultimately cost consumers.
What should we do?
For now, we can only take a wait and see approach with the ongoing NAFTA talks. Suppliers may want to consider expanding sourcing options if rules of origin for autos and parts become stricter. And anyone can keep informed by checking our “What’s happening with NAFTA” blog to keep up on the latest news.
Email our consulting department to understand the latest NAFTA talks and to get information on how a rejigged NAFTA could affect you.
Information provided by: NAFTA & Free Trade Dept. - Cole International