After a year of negotiations and deliberations, the United States of America and Mexico have agreed to overhaul the North American Free Trade Agreement (NAFTA) on Monday.
The new deal between the U.S. and Mexico introduces new rules for carmakers and the automotive industry in general. President Trump has prioritized auto trade in his pursuit to redesign the terms of NAFTA, which he has described on multiple occasions as a “disaster” for American workers.
Under the new arrangement, 75 percent of automotive content (parts) are to be made in the NAFTA region, an increase from the current requirement of 62.5 percent. The stipulation is expected to shift production of some automotive parts to Mexico from China.
In addition, the revised deal requires 40 to 45 percent of auto content to be made by workers earning at least $16 per hour. The requirement is expected to move some automotive production from Mexico to the United States, but could also result in an increase in Mexican automotive wages.
Update August 29, 2018: we have just learned that the new deal between the U.S. and Mexico also caps the export of Mexican cars and sport-utility vehicles to the United States at 2.4 million vehicles annually; any volumes above that level being subjected to tariffs.
As part of the arrangement, Mexico agreed to remove dispute settlement panels for specific anti-dumping cases. The development will likely muddle negotiations with Canada, which has been insisted on the panels.
The timespan of the new deal has also changed, with the U.S. agreeing to remove an automatic expiration of the deal. At the beginning of talks, U.S. negotiators were very much favor that the pact automatically run out, known as a “sunset clause”.
Instead, the new treaty between the U.S. and Mexico has a 16-year lifespan. A review every six years has the ability to extend the pact for 16 years.
Ratification Process
White House officials said Trump will sign the deal in 90 days, with Congress having to approve it before it goes into effect.
Canada Impact
The agreement puts newfound pressure on Canada to agree to the new terms if it wishes to continue being part of the three-nation entente.
Talks with Canada are ongoing.
Trump and Canadian Prime Minister Justin Trudeau conferred on trade on Monday and “agreed to continue productive conversations,” said White House spokesperson Sarah Sanders in a statement.
Impact On GM
How the agreement will impact General Motors is currently unclear, but we see it having the following potential repercussions:
- A decrease in the amount of China-sourced parts for vehicles built in the NAFTA region, resulting in an increase of Mexico-sourced parts for NAFTA-built vehicles (as a result of the 75 percent parts content stipulation)
- A decrease in Mexico-built vehicles in favor of U.S.-built models (as a result of the 40-45 percent $16/hour wage stipulation)
Comments
Great to see Mexico capitulate to President Trump and agree to a BILATERAL U.S.-Mexico TRADE DEAL. NAFTA is DEAD, no matter how much this site tries to make like it is still around in any form similar to before.
Come on Canada, Mexico has found common ground with the United States and President Trump so hope youy guy Trudeau wakes up and smells the reality. The fake tough talk is going nowhere and the Canadian economy, however bad right now, is depending on a trade deal.
Canada is already bending the knee. They’ve agreed to work with the US on a deal.
Trump is about to grab them by the Trudeau.
It’s called WINNING!
Congratulations, President Trump. The Art of the Deal in action…
What many miss here is how this deal will hit China.
The higher content from North America and higher wages will prevent China from importing or putting in low paying plants here making parts. Same for India.
I expect Canada to fall in with the other by Friday.
The Mexican rep was just on TV and was happy with how this worked out for each party. Heard a UAW rep too and he is happy.
Not the perfect deal but a better and more fair deal for more people.
When the plants in the NAFTA region can’t no longer import the parts they need, they may be forced to move the whole plant elsewhere.
Doing stupid moves rarely results in the intended goals.
“how this will hit China” — look at the newer article about the July sales numbers of GM brands in Mexico:
42% of all Chevrolet sales in July 2018 are imported from China, the Aveo and the Cavalier.
When local production in Mexico becomes more expensive because of the clauses in this preliminary US-MX agreement for a revision of the tripartite NAFTA treaty, this percentage might increase.
The Murdoch owned Wall Street Journal is calling it “half a NAFTA,” notably worse, and loaded with nonsense. A PBS article had the following to say:
The change is intended to promote auto production in North America, but it could have the unintended consequence of making it harder for the U.S. and Mexico to import auto parts the countries don’t produce themselves, said Gordon Hanson, the director of the Center on Global Transformation at the University of California, San Diego.
“You’re not going to be able to make all the parts for any sophisticated manufacturing product in any given country,” Hanson said. “That’s just not the way the global economy works anymore.”
He added: “By removing that flexibility you have made those automobiles less competitive globally and that may actually undermine the overall competitiveness of the North American auto industry.”
*****
You can bet whatever details this WH touts will be aimed squarely at drumming up public support in regions critical to the president’s reelection hopes, but details have a history of falling woefully short of reality with this administration and in this case they might not even make the final agreement. I think something so complicated deserves to be thoroughly unpacked and examined before celebrating it.
This prelimiary US-MX agreement aims at making automobile production in NAFTAland more costly.
This will not only result in higher prices for automobiles in NAFTAland, but will also push the big automobile corporations to reconsider their choice of Mexico or the USA as global export platforms because of the low wages in both countries and because of the central position of North America with shores to both the Atlantic and the Pacific oceans and shipping lanes to all important markets of this planet, and the direct access to the local NAFTA market as one of the three most important ones with Europe and China.
The automobile is no longer what it was 100 or even 50 years ago, it is a global industry with global supply chains.
The outgoing Mexican president Peña Neto may believe that these stipulations increase the importance of Mexico in the world wide automobile industry, but he appears to me like the tribal chiefs in Africa 200 years ago, who accepted glass beads as payment for slaves. The shot may well go in the other direction.
Peña Neto should also take into account that his successor has already been elected; he should not try and lay a cuckoo’s egg into Lopez Obrador’s nest.
A better deal for the American worker and Mexican citizens alike. Winning!
Don’t let yourself being duped by Trump! This is NOT A DONE DEAL, but just a letter of intent spelling some principles, which still need to be negotiated, and where the Mexican govenment expects the Canadian government to participate.
See this article in the Mexican daily La Jornada: http://www.jornada.com.mx/ultimas/2018/08/27/celebra-pena-entendimiento-bilateral-sobre-tlcan-3799.html
“We have reached an understanding about the fundamental points of the bilateral relations” said Mexican president Enrique Peña Neto, according to this article. “After hailing the will of the tow parties to conclude this agreement, he expressed his trust that soon Canada can join the negociations of the new terms of the Free Trade Agreement between the three nations.”
There are 400,000+ Silverado and Sierra trucks that shipped from GM Mexico annually to the US.
Is this going to change?
It might with the stipulation of the $16 hourly wage requirement. We’ll examine this shortly. Stay tuned.