The Detroit News: Killing NAFTA Will End the Good Times

If only that were true. Bad government policies could quickly upset the cheery ride the economy has been on this year. And Trump is dancing along the edge of a really bad policy.

His administration this week laid out a new set of demands in its re-negotiations of the North American Free Trade Agreement that threaten to irrevocably damage the talks and cripple the nation’s most important trade pact.

The proposals are likely to be deal-breakers for Mexico and Canada, our partners in NAFTA, and they would hit Michigan’s automobile industry particularly hard.

The administration is now proposing to raise the content rules of origin to consider a vehicle made within the NAFTA zone to 85 percent from 62.5 percent. The president also wants to add a U.S.-only content requirement of 50 percent, meaning half of every car traded under the trade agreement has to be made from American parts.

That will drive up the cost of car production, which will in turn impact sales and employment in the auto industry. It will also force automakers to Asia and elsewhere to purchase parts that are free of the onerous NAFTA restrictions. This is not a strategy for bringing jobs back to the United States. But it will kill them in Mexico.

The U.S. also wants to include steel on the NAFTA tracing list. Vehicles can now be made without any U.S. steel, since it is not included on mandated NAFTA materials. Again, this would drive up per-vehicle costs and give the limited number of U.S. steelmakers more leverage than they should have in the market.

Automakers and their suppliers are warning such a dramatic shift in NAFTA rules could cost 50,000 or more U.S. jobs. That would surely throttle the growth and employment numbers of which Trump is so proud. Business groups have been lobbying the administration and Congress hard to rethink the aggressive NAFTA proposals.

Trump would be smart to listen. He promised during the campaign to either rewrite NAFTA to favor the U.S. or scrap it.

But he’s also promised economic growth of above 3 percent annually. He can’t fulfill that second vow if he recklessly explodes NAFTA.

There are some changes needed in NAFTA to better protect intellectual property rights and give some teeth to compliance procedures. But when business is booming, as it is now in the United States, a smart executive doesn’t make radical changes to the operating plan.

NAFTA can be made better. But if Trump chooses disbandment over improvement, or drives our trading partners away with untenable demands, it will be at the expense of a reasonably healthy economy.

SMU Comments: At the beginning of October, we conducted one of our flat rolled steel market trends surveys and one of the questions asked was, “The U.S. government is renegotiating NAFTA. Do you expect this will be good for your business?” Our respondents where almost equally split with 51 percent agreeing and 49 percent disagreeing. This is something that concerns our readers, and we will continue to watch the negotiations being headed by USTR Robert Lighthizer, a former attorney representing the steel industry, who recently testified before Congress saying he has an “audience of one….”