The potential impact of leaving NAFTA on automakers
INSIGHT ARTICLE |
Despite an improved outlook, it is possible that the U.S. political authority will trigger a six-month review period for exiting NAFTA sometime during the next 90 days. At stake is more than $1 trillion in cross-border trade and more than 14 million jobs across three economies.
According to RSM Chief Economist Joe Brusuelas, if the United States pulls out of the treaty, it will likely trigger a series of unintended consequences and indirect economic effects that will negate any short-term positive changes. These consequences include some significant changes for the auto industry.
Unintended—but not unforeseen—consequences
For example, the North American Free Trade Agreement supply chain confers a savings of roughly $4,000 to each consumer who purchases an auto produced across the continental economy. That savings would quickly unravel and would act as a direct tax on all who purchase autos produced in North America in 2019. The Canadian auto industry would face a particularly large shock with truck exports facing a 25 percent tariff in contrast with the 2.5 percent applied to auto exports.
Most importantly, assuming neither Canada nor Mexico withdraws from the treaty and both remain members of the Trans Pacific Partnership treaty, all other major competitors in that treaty will have access to both Canadian and Mexican markets at a zero-tariff rate, while U.S. businesses will not.
Since there is general agreement among the three nations that NAFTA needs to be modernized, there is an opportunity to bring balance to our trading partners and benefit all parties.
To learn more, read this month’s issue of The Real Economy.
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