By David Lawder
WASHINGTON (Reuters) – The U.S. auto parts industry could lose up to 50,000 jobs if the North American Free Trade Agreement is terminated and companies must pay higher tariffs to ship products to Mexico and Canada, according to a new study set for release on Thursday.
U.S., Canadian and Mexican negotiators are meeting in Arlington, Virginia, this week for a fourth round to try to revise the 23-year-old agreement, which allows the tariff-free flow of vehicles and parts across the three borders.
U.S. President Donald Trump has criticized NAFTA for luring U.S. manufacturing jobs to low-wage Mexico and has vowed to quit the pact or revise it to reduce his country’s $64 billion trade deficit with its southern neighbor.
Ending NAFTA, however, would result in a full reversion to tariffs under World Trade Organization rules, according to the Boston Consulting Group study sponsored by the Motor Equipment Manufacturers Association. The U.S. auto parts industry employs about 870,000 workers.
Mexico and Canada would fare better because they previously charged higher tariffs than the United States and would revert to those levels. And with no trade incentive to manufacture in the United States other than to avoid the 25 percent truck tariff, more full vehicle production would migrate to low-cost countries such as China, auto experts say.
Job losses could be as much as 24,000 if renegotiations lead to requirements for content from North American and specifically the United States, according to the study.
NAFTA negotiators face tough new U.S. demands to increase regional content for autos to 85 percent from 62.5 percent, with 50 percent from the United States, according to people briefed on the plan.
The rules of origin demands are among several conditions that the U.S. Chamber of Commerce has labeled “poison pill proposals” that threaten to torpedo the talks.
The auto parts study was conducted before these targets were revealed.
Raising the automotive content thresholds and forcing automakers to verify the North American origin of more electronics and other parts now sourced from Asia would cause some parts manufacturers to forego NAFTA benefits, said Ann Wilson, the association’s head of government affairs.
Instead, companies may ship in more products from low-cost countries outside the region, paying U.S. tariffs ranging from 2.5 to 5.0 percent.
“Instead of encouraging more U.S. content, these provisions will lead to less U.S. content,” Wilson said.