President Trump says he wants to renegotiate the North American Free Trade Agreement, or NAFTA. Over the last 25 years, the treaty has created a flow of products between the U.S, Canada and Mexico, especially for auto manufacturers. The Detroit-Windsor border is an integral part of that industry. Both American and Canadian auto union presidents say they welcome discussions about potential changes to NAFTA.
President Trump has yet to announce his specific plans for NAFTA, whether that be a withdrawal or renegotiation. Richard Walawender is a lawyer with the Law Firm of Miller Canfield and an authority on international law. He says any of the three countries that are part of NAFTA can withdraw from the agreement with six-month’s notice. That includes the possibility of Trump acting on his own. “Because under our constitution the executive, being the President, has the authority over foreign policy and foreign relations, it is the President who can act on behalf of the entire country by giving that notice” says Walawender.
President George W. Bush withdrew from the expiring anti-ballistic treaty with Russia in 2002. President Carter withdrew the U.S. from the Sino-American Mutual Defense Treaty with Taiwan in 1979. Senator Barry Goldwater sued President Carter over his decision. However, in a precedent setting case, the court threw out the lawsuit. It ruled the decision to withdraw was a political matter, not a judicial one. So regardless of what President Trump decides to do, Congress may not have authority to change it.
Walawender says if the U-S unilaterally withdraws from NAFTA, it would trigger a tariff structure for Mexico and Canada that applies to all nations under the most favored nation’s schedule.
“It depends on what kind of product it is, but if we’re talking about, let’s say, automotive components or other hard goods coming in, for these most favored nations the tariff on these products averages about 3 ½ percent” according to Walawender.
Another option for the President is renegotiation of certain provisions within NAFTA. But Kristen Dziczek, Director of Industry, Larbor and Economics Group for the Center for Automotive Research says ending or significantly modifying NAFTA could have serious implications for auto producers
“NAFTA has resulted in a very integrated market here in the U.S., Canada and Mexico. There are certainly promises of NAFTA that have yet to be fulfilled. There are some things that could be improved, but overall just throwing NAFTA out would throw this industry into a spin” says Dziczek.
She says parts manufacturers, suppliers, assembly plants and other essential components of the auto industry are scattered between the three countries. “There’s about 40% of the content of the Mexican built vehicle that is sent to the U.S. that is U.S content. So there are jobs in the U.S. that depending on Mexican capacity and Mexican production. And so, our jobs are depend on them producing that output”
And Dziczek says it’s not as easy as getting rid of NAFTA and simply bringing full production back to the U.S. “There are certain things that we don’t make in the United States anymore, there’s industries that we had that we no longer have. There’s industries that we never had that are part of automotive manufacturing. We’re producing on a global stage and every global production region has a low cost component”.
That low cost component is typically labor or parts. President Enrique Peña Nieto of Mexico says he’s willing to sit down with President Trump and consider a renegotiation, but not without compromises from all involved. Canadian Prime Minister, Justin Trudeau has already met with President Trump and Trudeau’s stance reflects the position of Unifor, the Canadian auto workers union and its President Jerry Dias. “We need to renegotiate NAFTA. NAFTA has been a disaster for Canada just as it has for the United States”.
Dias adds that Mexico has been a source of cheap labor with workers there making about 5-dollars an hour. He says jobs that were once at Canadian plants are now in Mexico. “If you look at trade, we had, pre-NAFTA 12 billion dollar trade surplus in manufacturing. Today we have a 120 billion dollar deficit. The biggest chunk of it is NAFTA. Since 1999 we’ve closed two assembly plants here in Canada. They’ve opened eight in Mexico” says Dias.
The United Auto Workers Union in the U.S. supports the same position as Unifor. During a monthly roundtable discussion with media, UAW President Dennis Williams, agreed with the Trump Administration’s assessment of how NAFTA has affected some workers. “NAFTA has disrupted their lives and how in many cases destroyed lives and destroyed the middle class and corporations took advantage of taking their jobs away from them” says Williams
So far the Trump Administration has not asked Williams to participate in any discussions regarding NAFTA, but the UAW Chief says renegotiating or withdrawing from the treaty altogether, or imposing separate tariffs and taxes, may not have the intended effect. “There’s so many factors in NAFTA that have to be addressed, does it diminish the currency to the point where it’s still cheaper to build in Mexico. There’s a whole lot of factors here, so we’re doing an in-depth look at what is it that will effectively have a trade agreement that is reciprocal in nature where all three countries will have a built in and purchasing power” says Williams.
He says the U-S is still has the strongest purchasing power in the world but Williams says U.S. industrial policies are weak when it comes to protecting American workers and that’s what he wants President Trump to focus on in the coming weeks as NAFTA discussions are moved to the front burner