A new study conducted by the Ann Arbor nonprofit Center for Automotive Research (CAR) finds that if president-elect Donald Trump withdraws from NAFTA and imposes his projected 35% tariff on imported vehicles and parts, vehicle prices will soar, the U.S. auto market will shrink and at least 31,000 U.S. auto manufacturing jobs will be killed.
The authors of the report noted, “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 report was funded by the Alliance of Automobile Manufacturers trade group.
Trump has termed NAFTA a “disaster” and threatened automakers selling Mexican-made vehicles in the U.S. with a 35% tariff.
The report estimates that a 35% tariff on vehicles imported from Mexico would trigger a plunge in employment in which 6,700 North American assembly jobs would be lost as well as 450,000 units of U.S. auto sales, CAR added that because Mexican-made vehicles are made of roughly 40% American parts on average, and American-made vehicles are made of about 12% Mexican parts, roughly 20,000 U.S. parts manufacturing jobs and 11,000 U.S. assembly jobs could be lost.
CAR stated, “Job losses would not be evenly distributed and would have an impact on individual automakers’ and suppliers’ capacity utilization, which could lead to plant closures and broader job impacts.”
As Crain’s Detroit Business writes:
Bringing manufacturing jobs back from Mexico after withdrawing from NAFTA also would not be as simple as Trump might imagine it, according to the report. About 55 percent of Mexican-made vehicles were exported to the U.S. in 2016, according to IHS Markit. To make up for those lost vehicles in the U.S. market, automakers likely would choose to supply the U.S. with small cars from plants outside the NAFTA region, CAR said. Doing so would require the 10 largest auto manufacturers to add about 1 million units of production capacity to the U.S. to produce other models. In theory, that could add an estimated 22,200 jobs. However, since there is very little open capacity at U.S. auto plants, automakers would be required to build new capacity for as much as $6.5 billion, according to CAR. Additionally, “Canada serves as an obvious likely replacement source of capacity,” the report reads. “In fact, [the] current exchange rate makes Canadian labor costs lower than those in the United States.”
Crain’s continued, “U.S. suppliers also could be threatened, as the U.S. exported $22 billion in parts to Canada in 2015 in addition to $20 billion to Mexico . . . Tariffs also would have a negative impact on U.S. dealers, according to the report, saying dealer employment could be negatively affected if automakers curb production or vehicle imports as a result.”
The report concludes, “If the U.S. leaves NAFTA, companies in Mexico and Canada may seek alternate, more affordable places to purchase these goods, such as China, India, and other regions with large, international U.S. competitors.”