Negotiations between the U.S., Canada and Mexico are stalled, in large measure, over President Donald Trump’s insistence that “rules of origin” percentages increase to levels that are more favorable for the U.S.
Under NAFTA, at least 62.5% of the material in a car or light truck made in the region must be from North America to be able to enter the marketplace tariff-free. The Trump administration has proposed increasing that minimum NAFTA content to 85%, with 50% made in the United States.
Auto executives have said repeatedly that the 85% is not doable and could add as much as $2,500 to the price of each vehicle if implemented.
“I’m hopeful that we’ll see a more rational number going forward and if it is more rational, then I think we’ll be able meet the standard,” FCA CEO Sergio Marchionne said during the Detroit Auto Show.
(Slow pace of NAFTA talks may force additional sessions. Click Here for the story.)
However, talks broke off earlier this week when the U.S. negotiator in the area, Jason Bernstein, suddenly returned to Washington D.C. from Mexico City to engage in discussions with U.S. automotive manufacturers about the topic.
The sides are now preparing to have inter-sessional discussions before the next round of talks later this month, according to Reuters. Bernstein is not expected to return to Mexico City to resume negotiations. Trump has made it clear that if the other sides don’t bend to his will, he plans to dissolve the agreement.
However, Trump may have gummed up the works by proposing new tariffs on imported steel and aluminum. He is suggesting tariffs of 25% on steel and 10% on aluminum with the details formally announced next week.
(Click Here for more about the rise in Mexican imports in 2017, despite Trump pushback.)
Trump believes the tariffs will protect American jobs, but many economists say the impact of price increases for consumers of steel and aluminum, such as the auto and oil industries, will be to destroy more jobs than they create.
“We’re going to build our steel industry back and our aluminum industry back,” he told Reuters.
The move got the attention of both Canada and Mexico as well as Wall Street. The move could trigger retaliation from major trade partners like China, Europe and neighboring Canada as well as helping to trigger a large selloff on Wall Street.
(To see why ending NAFTA cripples U.S. trade, according to a Clinton aide, Click Here.)
“Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers,” Foreign Affairs Minister Chrystia Freeland said in a statement. The move has automakers concerned that the prices of imported items will result in dent on their bottom lines.