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Killing NAFTA could cost North American auto industry thousands of jobs

Ford plant in Oakville, Ontario
[Cars on the assembly line at Ford’s plant in Oakville, Ontario/REUTERS/Fred Thornhill]

With the inauguration of president-elect Donald Trump less than a week away, nearly 40,000 workers in the automotive sector across North America could be on the chopping block, according to a new report.

A memo outlining the policy goals of the incoming president’s administration indicated that Trump would begin reforming NAFTA on Day 1.

Trump has repeatedly ripped the longstanding free-trade agreement between the U.S., Canada and Mexico, calling it an “an absolute catastrophe” and “a total disaster.”

Trump said he would renegotiate or withdraw the U.S. from the deal, which has been in effect since January 1994. He also threated to implement a 35 per cent tariff on Mexican-made vehicles exported to the U.S.

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While the president-elect’s goal is to bring industry and jobs back to America soil, the Center for Automotive Research, a think tank based in Ann Arbor, Mich., said these tactics could have the opposite effect.

In fact, its study indicates that a withdrawal from NAFTA or the implementation of punitive tariffs could result in the loss of at least 31,000 jobs in the country’s auto parts industry.

Part of these cuts would stem from the loss of Mexican import sales, as vehicles assembled south of the border contain U.S. parts, engines, transmissions and other content.

The report estimated that the other assembly line job cuts would result would from the implementation of the 35 per cent tariff on Mexican vehicle production, as automakers in the U.S. use parts their parts and components to the tune of an average of 11.7 per cent.

Furthermore, the report said that this tariff could result in an additional loss of nearly 6,700 jobs on assembly lines across North America.

“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,” said the report.

In addition, the report said that these job losses could be compounded if parts and components that cross the U.S-Mexico border multiple times are taxed for each trip before being installed at an assembly plant and if layoffs are not evenly distributed, causing factory closures.

Linda Hasenfratz, CEO of the Guelph, Ont., based auto parts manufacturer Linamar Corp., said at the Automotive News World Congress in Detroit Wednesday that taxing products multiple times as they cross the border would ultimately be a tab that consumers would be forced to pick up.

“It would add enormous cost that no one can bear,” Hasenfratz said.

The report also said that withdrawing from NAFTA or the implementation of heavy tariffs could spell other industry-wide problems.

It indicated that without NAFTA, “large segments” of America’s automotive industry would have uprooted for cheaper labour in Asia, Eastern Europe or South America.

“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,” wrote the authors, noting that this has helped maintain the U.S.’ dominance in vehicle production and parts manufacturing.

While Canada, Mexico and the U.S. were responsible for a significant portion of the world’s vehicle production, pumping out 17.8 million in 2016, the report indicates that the six major automakers producing vehicles in that are for sale in the U.S. have a number of assembly plants outside North America and extensive global supply chains.

“In the event vehicle imports from Mexico into the United States should be limited, it is clear that the automotive industry enjoys many alternative locations that would provide ready sourcing options outside the United States,” said the report.

“This global capacity, and the expertise the automakers possess in flexing production within it, erode the likelihood that the United States would exclusively benefit in securing replacement production of vehicles or production of parts.”

The study said that Canada could be one of the countries that could be ready to step in.

“Canada serves as an obvious likely replacement source of capacity,” said the report

“In fact, current exchange rate makes Canadian labour costs lower than those in the United States.

The report called both Mexico and Canada “export powerhouses” with thee domestic consumption of the vehicles they manufacture hovering around 20 per cent and 12 per cent respectively, with the U.S. being the chief destination.

It also said both Canada and Mexico, which received US$233.9 billion and $185.3 billion of the U.S. exports in 2015, could seek more affordable places to purchase goods such as China, India and other regions.