Trump Admin Drops Bombshell Days Before NAFTA Negotiations

 

 

 

 

 

 

 

 

 

By Vernon Lindo ’20

 

The Trump Administration has announced its hardline stance on changes to the rule of origin regarding auto parts, jeopardizing trade negotiations all together. The United States proposal that will be discussed with the Canadian and Mexican trade delegations on Wednesday would require 85% of auto parts in North American cars be produced within the trade bloc with 50% of those parts coming from the United States exclusively.

Previous American demands have included a sunset clause that would cancel NAFTA after five years unless all parties agreed to extend it, as well as a Buy American provision that would make it more difficult for foreign companies to bid on public projects.

In the light of this new revelation, Mexican sources have labeled the proposal as absurd and unacceptable. On the Canadian side, both the Automotive Parts Manufactures’ Association and the auto workers’ union, Unifor, both agree that these changes would lead to producers scaling back North American production and paying the 2.5% import tariff instead. Daniel Ujczo, a trade layer with Diclinson Wright PPLC, predicts that the Mexican and Canadian strategy would be to take a time out from negotiations and wait for pro-NAFTA organizations like farm and business lobbies to exert pressure on the administration if the United States in fact refuses to budge on these conditions in Round 4.

The outlandish nature of this proposal has raised questions about if Trump is truly serious about these talks and has raised doubts that negotiations will be successful. Phil Levy, senior fellow at the Chicago Council on Global Affairs and former trade advisor to George W. Bush, pegs the chance that NAFTA will survive at less than 50%. If NAFTA were to end, the economic consequences would be felt across the entire continent with the unraveling of cross-border supply chains, the reintroduction of Canadian trade barriers and Mexican tariffs on farmers, as high as 37% on corn, and the reduction of cross-border investment. As a result, prices on consumers would soar at a time when American wages have been stagnant, ultimately reducing American purchasing power and quality of life.

While Trump has the legal authority to pull the U.S. out of the deal if he so chooses, Gary Hufbauer, senior fellow at the Peterson Institute for International Trade, has said that Congress could fight back by passing a resolution requiring the president to receive congressional authority on a withdrawal. The President has also stated that if talks sour, he would be open to striking bilateral trade deals with Canada and Mexico individually, but it is yet to be seen how receptive Prime Minister Trudeau and President Nieto would be to such an offer.

 

Sources:

https://www.reuters.com/article/us-trade-nafta-autos/u-s-stance-on-auto-industry-sows-more-doubt-about-nafta-overhaul-idUSKBN1CI1VN

https://www.msn.com/en-ca/money/topstories/us-starts-delivering-bombshells-on-nafta/ar-AAtmHwE

https://www.msn.com/en-ca/money/topstories/us-demands-raise-fears-that-leaving-nafta-could-hurt-economy/ar-AAtjvHN

https://www.cnbc.com/2017/10/12/trump-says-open-to-bilateral-canada-mexico-pacts-if-nafta-talks-fail.html

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