Trump’s NAFTA Changes May Not Be as Drastic as Promised
All right, folks. Let’s hike up our pants and crack our necks, because I’m about to talk about President Trump for the umpteenth time this week.
This time, it’s about the North American Free Trade Agreement. When Trump was first elected, one of his biggest talking points was eliminating or renegotiating the terms of the deal. In particular, he has threatened huge tariffs with Mexico as a means of getting carmakers to invest more inside the US. While investments have occurred since then, given the long-term planning strategies that automakers tend to use the investments, for the most part, were probably already planned.
However, it seems that rumors of large changes for the agreement were greatly exaggerated. According to the Wall Street Journal, a draft proposal has been circulating Congress that would keep some of the more contentious provisions of NAFTA intact, such as its arbitration tribunals. However, it does call for reinstating tariffs should imports cause “serious injury or threat of injury.” The interpretation of that phrase, in a nutshell, is what worries automakers.
Should heavy tariffs fall on the Mexican border, many automakers would face significantly increased costs, whether on bringing in whole vehicles or importing parts, as either way a large chunk of the industry operates out of Mexico.
On the brighter side, this proposal might be seen as a small sign that changes, although still present, may not be as drastic as some have feared. However, on the other hand the proposal is still a draft, and can be changed. Either way, the administration needs to provide Congress with 90 days’ notice before it can begin any formal negotiations.