U.S. To Demand “Made In America” Auto Parts Provision As NAFTA Tensions Rise

Some think the demand will be used as a bargaining chip to spur concessions on other issues.

As NAFTA negotiations continue, the United States will reportedly demand a “Made In America” provision on auto parts that is expected to receive big-time opposition from both Canada and Mexico.

Currently, 62.5% of a car must be North American made for the vehicle to avoid tariffs. The new demand is to raise this to 85%, and mandate that 50% of the car is built with American parts.

The head of the Canadian Automotive Parts Manufactures Association Flavio Volpe thinks it’s a negotiating tactic, saying “There are those who think these are poison pills designed … to get the partners to leave the table.”

Jerry Dias, the head of Unifor, says Canada and Mexico would never agree to such a provision. He correctly points out that since America’s tariff on foreign cars is only 2.5%, it would be far cheaper for auto manufacturers to ignore the “Made In America” parts requirement and simply pay the 2.5% tariff.

Said Dias, “All this argument about 50 per cent, 70 per cent, 85 per cent, it means nothing as long as the U.S. has a 2.5 per cent tariff. It’s like the emperor with no clothes. They can yell, scream, threaten, then people say, ‘Okay, here — I’ll pay the 2.5 per cent.'”

That’s why this demand is almost certainly a negotiating tactic. The intention of the U.S. negotiators is likely to use the demand as something to sacrifice in an attempt to get concession on other issues. After all, the U.S. could do far more to protect their auto sector and auto parts jobs by increasing tariffs on foreign-made (outside of NAFTA) vehicles. Canada should also consider a similar measure to help incentivize the purchase of Canadian-made or North American made vehicles.

Rising trade tensions

There was some surprise when U.S. Commerce Secretary Wilbur Ross revealed that Trudeau government negotiators had not yet brought up Bombardier or Softwood Lumber in a formal capacity. This was despite the rhetoric of the Trudeau government, giving the impression that they were fighting hard on it.

With those issues still to come up, and the new U.S. auto demands being tabled as early as today, NAFTA tensions continue to rise.

Spencer Fernando