UPDATED: 1/20/17 4:43 pm ET – adds details
Minutes after his inauguration, President Donald Trump signaled plans to pull the U.S. from the Trans-Pacific Partnership and renegotiate the North American Free Trade Agreement, moves that analysts say could have profound effects on the automotive industry.
The announcement, posted online by Trump’s new White House team, comes after years of his blasting both trade deals as job-killers that hurt American workers and moved jobs overseas.
“With a lifetime of negotiating experience, the President understands how critical it is to put American workers and businesses first when it comes to trade,” the White House said in a statement. “With tough and fair agreements, international trade can be used to grow our economy, return millions of jobs to America’s shores and revitalize our nation’s suffering communities.”
In confirmation hearings this week, Trump’s choice to head the Commerce Department, former auto supplier executive Wilbur Ross, signaled that renegotiating NAFTA would be an urgent priority.
NAFTA, which took effect in 1994, created a free-trade bloc linking the U.S., Canada and Mexico. The White House team said Friday that if the NAFTA partners refuse “a renegotiation that gives American workers a fair deal,” then the president will give notice of the country’s intent to withdraw.
If the U.S. makes such a move, a withdrawal from NAFTA would cost at least 31,000 U.S. auto jobs and cause vehicle prices to rise, a recent study by the nonprofit Center for Automotive Research found.
Despite the change in policy on trade from the White House, the website of the U.S. Trade Representative’s office still prominently featured the TPP and its benefits to American workers, reflecting the Obama administration’s position.
Although there was no specific mention of it in Friday’s posting, Trump has repeatedly vowed to slap a 35 percent tariff on all Mexico-built vehicles sold in the U.S.
The CAR study said that would result in a loss of at least 6,700 North American assembly jobs and 450,000 units of U.S. auto sales. 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.
Mexican officials have vigorously defended NAFTA as crucial to U.S. economic competitiveness.
Mexican President Enrique Pena Nieto, on his official Twitter account, on Friday congratulated President Trump and vowed to strengthen relations between the two governments.
“We will establish a respectful dialogue with the government of President @realDonaldTrump for the benefit of Mexico,” he wrote just after Trump’s swearing in.
“Sovereignty, the national interest and protection of Mexicans will guide the relationship with the new government of the United States,” Pena said.
Canada Prime Minister Justin Trudeau congratulated Trump in a statement.
“Canada and the United States have built one of the closest relationships between any two countries in the world. This enduring partnership is essential to our shared prosperity and security.
“Together, we benefit from robust trade and investment ties, and integrated economies, that support millions of Canadian and American jobs. We both want to build economies where the middle class, and those working hard to join it, have a fair shot at success.”
Trudeau said Canada looks forward to working with Trump and U.S. leaders “to restore prosperity to the middle class on both sides of the border, and to create a safer and more peaceful world.”
Auto industry leaders have said in the run-up to Inauguration Day that they hope government negotiators will convince Trump of the value of NAFTA for all three nations, and particularly of Mexico’s role in making automakers more competitive.
But union leaders in both the U.S. and Canada have attacked NAFTA since the beginning.
U.S. automakers have repeatedly stressed their support of free-trade deals, although some, such as Ford Motor Co., have warned that such deals must have protections to guard against currency manipulation.
The new administration on Friday also vowed to crack down on nations that violate trade agreements and harm American workers.
“To carry out his strategy, the President is appointing the toughest and smartest to his trade team, ensuring that Americans have the best negotiators possible,” the White House’s release said. “For too long, trade deals have been negotiated by, and for, members of the Washington establishment. President Trump will ensure that on his watch, trade policies will be implemented by and for the people, and will put America first.
“By fighting for fair but tough trade deals, we can bring jobs back to America’s shores, increase wages, and support U.S. manufacturing.”
Marina Whitman, an expert on international trade at the University of Michigan and former chief economist at General Motors, noted “global trade has started sliding in comparison to global gross domestic product growth, even before Trump was elected and doubled down on his protectionist rhetoric about imposing punitive tariffs and tearing up trade agreements.”
While Whitman said NAFTA could be updated, she described Trump’s proposal as “both more drastic and more irrational; it would have a negative effect on both the U.S. economy and those of our trading partners, especially China, Mexico, Canada as well, indeed, on the global economy.”
Tony Faria, co-director of automotive and vehicle research at the University of Windsor’s Odette School of Business, said he isn’t surprised by the president’s intentions but said it’s too early to tell what the changes will mean to Canada.
Canada has agreed to the TPP but as Faria noted “it’s not necessarily been vigorously supported” by the public, particularly not by autoworkers.
He said Canada could also use the opportunity and also pull out of the TPP or see America’s withdrawal as an advantage.
“If Canada was part of this group and the United States wasn’t, then it makes a little more sense to assemble some vehicles in Canada where Canada might be a better exporter than the United States might be, depending on where you’re exporting,” Faria said.
When it comes to NAFTA, Faria stopped short of saying it could cause a trade war if Trump follows through on pulling out and implements his proposed “border tax” on vehicles built outside the U.S.
“Any tariff he wants to put on any vehicle coming from Canada to the U.S., the natural thing for Canada to do is put the same tariff on any vehicle coming to Canada from the U.S.,” Faria said. “If the U.S. pulled out of NAFTA, we’re talking about tariffs being imposed and we ship 85 percent of the vehicles built in Canada to the United States. The same thing happens the other way.
“The fact remains the vast majority of vehicles bought in Canada aren’t built in Canada and the No. 1 source is the United States.”
For example, Canada’s top-selling vehicle in 2016 was the F-series pickup, built in Michigan and Kansas. Ford sold 145,409 of the trucks in Canada in 2016.
John Irwin and Greg Layson contributed to this report.