`Double Whammy' of Trump Tariffs, Nafta Redo Menaces Automakers

(Bloomberg) -- Auto companies are griping that the U.S. plan to modify Nafta is so strict it would cripple an industry that it’s supposed to help.

No North American-built vehicle would be eligible to benefit from tariff exemptions under Nafta if the U.S. gets its way, and the administration’s proposals would be especially bad if they’re linked -- as President Donald Trump hinted at in a tweet -- to potential levies on steel and aluminum, said John Bozzella, president of the Association of Global Automakers.

“This could be a double whammy. We could end up with both the tariff and an unworkable Nafta, or with an unworkable Nafta in exchange for the tariff,” Bozzella said in an interview Tuesday. “It’s not much of a bargain.”

In a bid to modernize the North American Free Trade Agreement and boost U.S. manufacturing, Trump wants to change the regional content requirements, or rules of origin, that dictate where car-components come from. His administration has proposed raising the North American requirement to 85 percent from 62.5 percent for a typical car and add a U.S.-specific requirement of 50 percent content, while also rewriting the list of which products are tracked. All U.S.-sold vehicles fall short of these targets, Bozzella said.

The North American auto industry is far more than Detroit’s traditional Big Three. The Washington-based trade group led by Bozzella represents companies that are mostly headquartered outside the U.S. but boast more than 30 manufacturing facilities in the country. Its members include Japan’s Toyota Motor Corp., Germany’s Robert Bosch GmbH and South Korea’s Hyundai Motor Co.

Partners’ Pushback

Canada and Mexico have largely rejected the U.S. proposal, which Bozzella said could also harm the ability of North American automakers to compete with Asia and Europe. Canada has suggested negotiators discuss fresh ideas on how to calculate the value of regional content, including giving more credit for driverless and electric cars. Bozzella called Canada’s ideas encouraging.

Meanwhile, Trump’s plan to implement a 25 percent tariff on steel and a 10 percent tariff on aluminum would raise car prices in the U.S., invite retaliation from trading partners and slow the pace of exports, Bozzella said. It would also swallow up the potential economic stimulus resulting from recent U.S. tax reform.

Bozzella acknowledged that the auto industry sometimes disagrees with Trump on policy. But he said it’s a good thing that the administration declared a vibrant U.S. auto industry as one of its top goals from the very beginning.

“Their heart is in the right place,” he said. “It’s a matter of constant engagement to get to the right answer.”

--With assistance from Eric Martin and Josh Wingrove

To contact the reporter on this story: John Lippert in Chicago at jlippert@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat

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