The rewrite of Nafta alleviates the threat of automobile rates in the economy
The rewrite of Nafta alleviates the threat of automobile rates in the economy
The successful rewriting of the North American Free Trade Agreement raises a cloud that hovers over a significant part of the US consumer economy. UU By eliminating the Trump administration's threat of a 25% tariff on automobile imports from Mexico and Canada, two of the largest sources of cars sold. the United States
During the final stages of the Nafta negotiations, which culminated the weekend in the New United States agreement with Mexico and Canada, or USMCA, President Trump repeatedly threatened to impose rigid automatic tariffs if countries could not reach an agreement. The threats raised concerns among executives in the auto industry and economists who warned that there would be widespread damage if tariffs were applied to the approximately $ 360 billion in cars and auto parts that the United States imports each year.
By accepting the revised treaty, Mexico and Canada obtained parallel agreements that would exempt them to a large extent from tariffs, should they have an effect on imports from other countries. In the same way, the threat of tariffs has also prompted the European Union and Japan to intensify their trade talks with US negotiators.
While the threats result in talks rather than tariffs, economists say the potential impact on the US economy is greatly reduced. "If you look at the results: did you bring them to the table? Yes. Did your blood pressure increase? Yes, "said William Reinsch, senior advisor at the Center for Strategic and International Studies.
And yet, "it did not cause anyone to surrender," Mr. Reinsch said. "But you can argue that it led them to take everything more seriously than they would otherwise."
When Mr. Trump first threatened tariffs on the cars, he sent shock waves to the industry. Of all its commercial threats, the automotive tariff was the biggest of its threats, a fact that Trump himself repeatedly recognized, saying that "cars are the big ones".
I know. UU And Canada reached a last-minute agreement at the end of September 30 to revise the North American Free Trade Agreement. We look at what is and what has changed. Photo: Getty Images.
The auto industry observed the Trump administration's willingness to back its threats with actions, at least on some occasions. The administration has imposed tariffs on the entire global steel and aluminum industry, and only exempts countries if they agree to agree on restrictive quotas. The administration has also advanced with tariffs of around $ 250 billion of Chinese imports.
If tariffs had been applied to all $ 360 billion in annual imports of automobiles and auto parts, the application of such tariffs by the Trump administration to date would have more than doubled. The Automotive Research Center estimated that tariffs of 25% on all imports of automobiles and auto parts would have increased vehicle prices by $ 4,400 and would cost the US. UU About 715,000 jobs.
The higher prices of cars would mean that consumers would have less for other purchases, which would also affect other sectors of the economy. The result: tariffs could have reduced the US gross domestic product by approximately $ 60 billion. UU., Enough to cut around 0.3 percentage points of the US growth rate. UU., With the damage highly concentrated in the automotive industry, said CAR.
Such estimates led to a unified opposition from the auto industry. When the Department of Commerce celebrated its public hearings on the proposal, all but one of the 43 groups that requested to testify at the hearing were against the rates. The only group that offered qualified support was the United Auto Workers, the largest union of auto workers in the country, which said it supported "specific measures."
Even so, the UAW warned that "any hasty action could have unintended consequences, including mass layoffs."
In total, the US UU They imported $ 178 billion in cars and auto parts from Canada and Mexico in 2017. Under the new Nafta agreement, the US UU They agreed that even if they advance with tariffs for automobiles, the current level of imports from Canada and Mexico as well. as an added buffer, it would be exempt.
Tariff threats have also brought the EU and Japan to the negotiating table. The United States imported $ 62 billion of cars and auto parts from the EU in 2017, and $ 55 billion from Japan. The United States has also recently signed a new trade agreement with South Korea, the source of another $ 24 billion in imports.
Canada, Mexico, Japan, South Korea and the EU represent around 90% of all imports. If everyone wins the exemption, then the car rates, while not trivial, would affect a smaller part of the trade than the steel and aluminum tariffs, and would be much smaller than the actions against China.
For Japan, South Korea and the EU, exceptions remain tentative. Car rates have been threatened under the auspices of Section 232 of the Commercial Expansion Act of 1962, which allows tariffs in the event of a threat to national security. The Department of Commerce has been ordered to study. if car imports are a threat to national security, and you must complete a report on the subject for February.
Asked today about the status of the study of automobile rates, Lawrence Kudlow, director of the National Economic Council of the White House, said: "It is still under investigation, still working on it."
That means that the possibility of tariffs can not be discounted.
For now, with Canada and Mexico safe, the US economy. UU He has avoided the most extreme scenario. The CAR study estimated that, with Canada and Mexico exempt, but the 25% tariffs that still affect imports from the rest of the world, the average price of the vehicle increased by $ 1,760 and the United States would lose 197,000 jobs.
The new Nafta agreement, while offering Canada and Mexico an exemption from tariffs, still leaves explicitly open the possibility of tariffs for all others.
"This administration has shown that it has used the rates as a negotiation tool," said Jason Gerlis, subregional director for North America and the Caribbean of TMF Group, a global professional services firm that specializes in business expansions.
"Definitely, they have left the option open," said Gerlis, "either because they intend to apply them or because they want to keep raising that hammer on everyone's head."
-Anthony Harrup contributed to this article.
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