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DETROIT — As the Trump administration touts a last-minute deal with Canada to remake the North American Free Trade Agreement, the agreement’s importance may be more about simple certainty than wholesale change for the automotive industry and the jobs it produces.
Experts caution that it’s unclear whether the deal will lead to more jobs, and some warned that consumers could take a hit from higher vehicle prices. Ending the threat of more tariffs on key trading partners such as Canada and Mexico will allow the industry to breathe easier, but trade disputes with countries such as China mean uncertainty remains.
Requirements for more regional content produced by workers making higher wages should mean a boost for American workers, but other aspects of the deal between the United States, Canada and Mexico muddy the waters.
Under the deal, called the United States-Mexico-Canada Agreement (USMCA), automakers can qualify for zero tariffs if 75 percent of their vehicles’ components are manufactured in the United States, Canada or Mexico, which is an increase from 62.5 percent under NAFTA.
It also calls for higher wages for autoworkers.
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Starting in 2020, the agreement requires that 30 percent of vehicle production must be done by workers earning an average production wage of at least $16 per hour. That’s about three times the pay of the average Mexican autoworker and in 2023, the production percentage rises to 40 percent.
Previously announced steel and aluminum tariffs remain in place for now, but the agreement would stop the imposition of the 25 percent tariffs President Donald Trump had threatened on imported vehicles from Canada and Mexico.
Ivan Drury, senior manager of industry analysis for Edmunds, which does auto research and advises car buyers, said the deal appears to save the industry from major headaches, but that challenges remain.
“The elimination of a 25-percent tariff on imported vehicles is a huge win, but the new regional value content requirements mean that automakers will not be able to source parts as freely, so there will be added costs associated with vehicle manufacturing,” he said.
“Depending on how high these become, there could be setbacks to standard vehicle content or more content could become optional with higher markups,” he continued.
“Given that new vehicle prices are already stretched to record highs, things could take an ugly turn for consumer wallets, especially considering the trend of continuously rising interest rates.”
John Bozzella, president and CEO of the industry group Global Automakers, warned of ongoing trade concerns despite the deal. Global Automakers represents numerous auto companies with U.S. operations but which are headquartered outside the United States, including Toyota, Nissan and Subaru as well as technology companies and suppliers such as Aptiv and Bosch.
Canada’s decision to join the agreement “is an important step, but it does not alter the fact that the cost and complexity of complying with the new auto rules will pose serious challenges for U.S. automakers,” Bozzella said.
Others cautioned that the impact, despite the rhetoric, would be less than advertised.
The agreement reached late Sunday is a “slight reform rather than the historic agreement the Trump Administration is claiming,” an expert on international trade based in Canada said Monday.
“The Trump administration created a crisis, and then agreed to resolve it,” said Krzysztof Pelc, who is a political science professor at McGill University in Montreal and a top global trade analyst. “It remains to be seen whether voters will come away remembering the crisis, or its resolution.”
He continued, “An example of this is the threat of tariffs on the Canadian auto industry: These threats were never credible to begin with, given the level of integration of the auto industry across the three countries, but the new deal is now being hailed as resolving that issue.”
In the end, he said, the good news is that there’s an agreement at all, and that the auto industry can return to the business of business, without having to fear a major adjustment in its day-to-day operations.
Jon Gabrielsen, a market economist who advises automakers and auto suppliers, said that U.S. manufacturers “dodged a bullet” with the agreement.
“Given the millions of interdependencies in their supply chains cross the Mexican and Canadian borders, the alternative would have been devastating,” Gabrielsen said.
He emphasized, “However, it is very unlikely that the agreement will lead to much manufacturing returning to the U.S. as a result. It simply won’t get worse.”
Michelle Krebs, executive analyst for Autotrader, noted that unknowns remain.
“At more than 1,000 pages in length, we won’t fully understand the overall impact of the trade agreement negotiated over the weekend without further study and until it is officially approved later this year. However, the fact that there is a directional agreement at all, one that has a long-term horizon of 16 years and will allow automakers and their suppliers to do long-range planning, is a plus,” Krebs said.
Some automakers also weighed in with positive comments.
General Motors said in a statement that “agreement is vital to the success of the North American auto industry; we have long supported efforts to modernize it in a way that strengthens the industry and positions it for long-term success. We appreciate the negotiating parties for engaging the industry stakeholders and look forward to continued collaboration as the agreement is implemented.”
Joe Hinrichs, Ford’s executive vice president and president of global operations, said the company applauds all three governments for working together.
“We stand ready to be a collaborative partner to ensure this agreement is ratified in all three markets because it will support an integrated, globally competitive automotive business in North America. The benefits of scale and global reach will help to drive volume and support manufacturing jobs,” Hinrichs said in a statement.
Contact Eric D. Lawrence: firstname.lastname@example.org. Follow him on Twitter: @_ericdlawrence. USA Today contributed to this report.