Ford Motor Co. CEO Mark Fields at a press event at the company's Flat Rock, Mich., assembly plant. Ford announced in early January that was investing in new hybrid and autonomous vehicle production in Michigan and canceling a planned assembly plant in Mexico, but said economic reasons, not pressure
President Donald Trump's vows to renegotiate the North American Free Trade Agreement and pursue more protectionist trade policies likely would have a negative effect on the U.S. auto industry, a new study found.
NAFTA has been a net positive for the industry and for the U.S. economy as a whole, supporting high-wage jobs and making North America a more attractive place to do business, the Ann Arbor, Mich., nonprofit Center for Automotive Research found in a new study released this month.
Withdrawing from NAFTA and implementing a 35 percent tariff on imported vehicles and parts, as Trump has repeatedly pledged, would cause vehicle prices to spike, the U.S. market to shrink and at least 31,000 U.S. auto manufacturing jobs to be lost, according to CAR.
"Any move by the United States to withdraw from NAFTA or to otherwise restrict automotive vehicle, parts and components trade within North America will result in higher costs to producers, lower returns for investors, fewer choices for consumers and a less competitive U.S. automotive and supplier industry," the authors say in the report, funded by the Alliance of Automobile Manufacturers trade group.
Should Trump follow through on his trade promises, the final results on jobs could be the opposite of what he intends, the report found. For instance, a 35 percent tariff on vehicles imported from Mexico would result in the loss of at least 6,700 North American assembly jobs and 450,000 units of U.S. auto sales, according to CAR.
Because Mexican-made vehicles are made of about 40 percent American parts on average, and American-made vehicles are made of about 12 percent Mexican parts, about 20,000 U.S. parts manufacturing jobs and 11,000 U.S. assembly jobs could be lost as a result, CAR said. And those job losses could multiply due to other factors, it said.
Simply bringing manufacturing jobs back from Mexico after withdrawing from NAFTA also would not be as simple as Trump might imagine it, according to the report.
About 55 percent of Mexican-made vehicles were exported to the U.S. in 2016, according to IHS Markit. To make up for those lost vehicles in the U.S. market, automakers likely would choose to supply the U.S. with small cars from plants outside the NAFTA region, CAR said.
U.S. suppliers also could be threatened, as the U.S. exported $22 billion in parts to Canada in 2015 in addition to $20 billion to Mexico.
"The suppliers that would potentially move back to the United States to follow relocated vehicle production would be few -- mainly those tied to the just-in-time plants and jobs manufacturing other bulky, fragile, or otherwise difficult to ship parts and components," CAR said.
While acknowledging flaws with NAFTA -- including issues with labor and environmental standards -- the report's authors argue that NAFTA has been a positive force for keeping auto manufacturing jobs in the U.S. that otherwise would have gone elsewhere.
"Without NAFTA, large segments of the U.S. automotive industry would have moved to other low-wage countries in Asia, Eastern Europe, or South America," CAR said. "By producing cheaper automotive parts and components on the 'near shore' in Mexico rather than truly 'off-shore,' Mexican automotive plants helped sustain a competitive automotive industry across North America."
The U.S. exported about $419 billion of goods to Mexico and Canada in 2015, of which about 16 percent was automotive-related, according to the report.
"If the U.S. leaves NAFTA, companies in Mexico and Canada may seek alternate, more affordable places to purchase these goods, such as China, India, and other regions with large, international U.S. competitors," the report reads.