The debate is expected to heat up this week in Ottawa, where the president’s team is meeting Canadian and Mexican leaders for a third round of trade talks. The United States appears to be preparing to demand that duty-free goods under the North American Free Trade Agreement be made with more domestic parts.
We cannot forget that the point of a free-trade agreement is to advantage those within the agreement — not to help outsiders,” Commerce Secretary Wilbur Ross wrote in a column Friday for The Washington Post. “Instead, NAFTA has provided entry into a bigger market for outside countries, and the United States is paying the price.”
As of today, NAFTA-approved products must be made with at least 60 percent North American materials. For cars, the share is 62.5 percent.
President Trump wants to raise those thresholds, though the administration has not introduced a target number. Ross and U.S. Trade Representative Robert E. Lighthizer have also said they want to increase the minimum requirements of American-made content, the commerce secretary wrote, “especially in autos and auto parts.”
Ross pointed to a Commerce department report released Friday that found that the U.S.-made content of Canadian imports fell to 15 percent in 2011 from 21 percent in 1995, the year after NAFTA went into effect.
The share of American-made parts in products imported from Mexico, meanwhile, dropped to 16 percent from 26 percent.
This shift suggests that products from other foreign markets have flooded the mix. (Automobiles make up 27 percent of total imports from Canada and Mexico.)
"Hundreds of thousands of Americans go to work every day in the automobile manufacturing industry,” Ross wrote. “The declining U.S. share of content in imports from Canada and Mexico puts those jobs at risk.”
Ann Wilson, senior vice president of government affairs of the Motor and Equipment Manufacturers Association, a national trade group, disagreed.
Over the last five years, she said, jobs in American motor vehicle manufacturing have jumped 19 percent. The industry now directly employs roughly 891,000 workers.
Sourcing cheaper parts from abroad while pouring resources into high-tech design has fueled this growth, Wilson said. Applying tougher regulations could deliver unwanted consequences and endanger jobs, she said.
“If you are no longer able to use a global supply chain to find the best value, you’ll no longer able to compete against a vehicle that is made in Europe or Asia,” Wilson said.
Brett House, an economist at Scotiabank in Toronto, said tighter content requirements could increase the cost of American car production, which could push operations to Mexico or out of the continent entirely.
“Producers might decide that qualifying for duty-free access no longer makes sense,” he said.
He said the growing reliance on imported components was a function of advances in technology, including touch screens, sensors and automatic brakes.
The electronics content in North American cars has grown by an average of 12 percent each year since 2010, House said, and 40 percent of those products come from overseas.
Scott Paul, president of the Alliance for American Manufacturing, said he doesn’t think the United States should rely on other countries for such goods.
“This is a part that could have been produced in the U.S.,” he said, “and so, when you have a weaker rule of origin, it’s an open door for other countries to free-ride.”
Increasing the NAFTA-content thresholds, he said, could encourage more innovation and create more jobs on domestic soil.