WASHINGTON — The political rhetoric is looking more like reality.
Automakers and suppliers are starting to envision a world without the North American Free Trade Agreement amid growing signs the Trump administration is determined to gut the 23-year-old deal, which has integrated the U.S., Canadian and Mexican economies, and made the regional auto industry globally competitive.
Going into the fourth round of negotiations last week, U.S. negotiators adopted hard-line positions that are anathema to their trading partners and the auto industry. Chief among them: a call for stricter rules governing the amount of regional content required for products to cross borders duty-free and the way tariffs are calculated for components coming from outside the region.
The tough stance rapidly heightened concern in the auto industry and the broader business community that talks to renegotiate NAFTA could fall apart, allowing President Donald Trump to begin unwinding the accord. Given the pitched negotiating positions, it would take a humiliating capitulation by Mexico, Canada or the U.S. to keep the agreement alive in anything close to its current form.
For the auto industry, it matters little whether NAFTA gets blown up over political and nationalistic differences, or whether it’s recast with onerous provisions designed to improve the U.S. trade balance. The outcome is the same: supply chains
that operate at suboptimal levels and increase the cost of making vehicles.
Industry officials say they will eventually adapt, but they will do so in ways that protect their bottom lines rather than U.S. jobs and Trump’s political fortunes. No longer will automakers feel compelled to placate the president with promises to shift production and investment to the U.S. in hopes of staving off tariffs or benefiting from business tax cuts and deregulation.
Industry leaders say they will still serve U.S. customers, but without much incentive to invest in U.S. or even North American production. Instead, they will be motivated to source parts, especially electronics, and assemble vehicles where it’s most practical or economical.