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End of NAFTA would kill thousands of U.S. auto jobs, think tank says

In a Sept. 30, 2016, photo provided by Ford Motor Co., a United Auto Worker prepares to install an instrument panel inside a 2017 Ford F-Series Super Duty truck at the Kentucky Truck Plant in Louisville, Ky.

Sam VarnHagen/Ford Motor Co. via AP

Pulling the United States out of the North American free-trade agreement will lead to cuts in automotive jobs for Americans, a respected auto industry think tank said Wednesday as President-elect Donald Trump claimed successes in convincing car companies to shift investments out of Mexico.

The end of NAFTA would eliminate at least 31,000 jobs in the U.S. auto parts industry, "counter to the incoming Trump Administration's goal of creating manufacturing jobs," the Center for Automotive Research (CAR), based in Ann Arbor, Mich., said in a study.

The study was released hours after Mr. Trump warned again at a news conference Wednesday that he is targeting imports from Mexico. He also praised Fiat Chrysler Automobiles NV for investing $1-billion (U.S.) in two U.S. plants and urged General Motors Co. to heed his tweeted warning of last week that it will face "big taxes" if it continues to import a small number of Chevrolet Cruze models from Mexico.

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Read more: Auto sector nervously awaits the Trump card

Auto parts makers employ about 436,000 Americans on their factory floors, but a U.S. withdrawal would also affect white-collar jobs and employment at other manufacturing companies such as steel mills and tool and die makers, said Kristin Dziczek, one of the authors of the study.

"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," the study said.

The study pointed out that the U.S. benefits from Canada's participation in NAFTA.

"While it is a well-publicized fact that Mexico's domestic consumption is less than 20 per cent of the vehicles it manufactures, Mexico is not North America's only export powerhouse," the study said.

"Canada is even more dependent on exporting outside its own borders, with domestic consumption of just 12 per cent of the vehicles it manufactures within its borders."

Canada runs a big trade deficit in auto parts with the U.S. because more than 50 per cent of the value of the parts in Canadian-made vehicles is produced by U.S. suppliers.

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The Trump tweets and the threat to NAFTA have dominated discussion in the auto industry all week as auto makers and government officials gathered for the North American International Auto Show in Detroit, the Automotive News World Congress and the Deutsche Bank annual auto industry investor conference, both also in Detroit.

The chief executive officers of Canada's two largest parts companies made appearances at those events Wednesday and warned of the disruption that would be caused by ripping up of the NAFTA deal.

Linda Hasenfratz, president of Linamar Corp. said taxing products that cross the borders seven times in one form or another would lead to price increases that consumers would not pay.

"It would add enormous cost that no one can bear," Ms. Hasenfratz was quoted by Automotive News as saying.

Auto and parts companies that manufacture in North America need a low-cost location for some of their work in order to compete with Asia-based companies, Don Walker, CEO of Magna International Inc. said at the investor conference.

Mr. Trump has threatened to slap tariffs of 35 per cent on Mexican-made vehicles entering the United States.

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He has also called out Ford Motor Co.and Toyota Motor Corp. for announcing plans to increase vehicle production in Mexico.

Ford, which was targetted during the presidential campaign, announced last week that it has scrapped plans to build a $1.6-billion (U.S.) plant in Mexico, but said the decision is related to falling demand for the compact cars it was planning to assemble.

The tariffs Mr. Trump has threatened would have a significant impact on prices consumers pay and on an industry that has restructured itself to reflect tariff-free import and export of vehicles and the parts that go in them.

"You would not have to have anywhere near a 35 per cent tariff to take away the cost advantage of Mexico versus the United States," Bob Shanks, Ford's chief financial told a small group of reporters at a dinner in Detroit earlier this week at the North American International Auto Show. "Not even close."

Mr. Shanks would not reveal the number, but acknowledged that a tariff of less than 10 per cent would wipe out Mexico's advantage.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More


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