Trump administration wants direct control over global auto companies make cars and parts

Bloomberg Washington | Updated on October 30, 2019

An economic analysis have cautioned that the rules are so strict that they would result in higher car prices and lost sales.

The Trump administration wants to dictate how and where global auto companies make cars and parts to secure duty-free treatment under the new Nafta -- in its most direct intervention yet to manage trade and production, according to people familiar with the effort.

The issue is being discussed between Trump administration officials, congressional staff, and domestic and foreign auto makers in the context of the legislation that lawmakers will vote on for the trade deal to take effect. The White House wants specific language that would allow it to unilaterally administer the production rules for companies.

The US-Mexico-Canada Agreement, signed by President Donald Trump and his counterparts in November 2018, is still awaiting approval from the US Congress. The White House has touted the new production rules for the auto sector as one area of the deal that’s most beneficial to America.

But the companies, lawmakers and even the US International Trade Commission in an economic analysis have cautioned that the rules are so strict that they would result in higher car prices and lost sales.

Manufacturing slowdown

The push comes amid Trumps tariff-led assault on supply chains that run through China. It illustrates how much his administration has drifted from Republicans free-market ways and is willing to employ the sort of coercive tools used in command economies like China to force domestic production.

Its also happening as the presidents tariffs on steel, aluminium and imported components from China have contributed to a slowdown in American manufacturing that has begun to cause the loss of factory jobs in some politically important swing states going into Trumps 2020 re-election bid.

The negotiations over auto rules are taking place in parallel to discussions US Trade Representative Robert Lighthizer is having with House Democrats on changes the lawmakers are seeking to the new Nafta, or USMCA.

Officials from Lighthizers office for months have been meeting with auto-industry executives to talk through the firms transition plans. Those would allow for a grace period of as many as five years before they have to comply fully with the new rules in order to ship products across North American borders duty-free.

Political pressure

The agreement the three countries signed refers to these transition plans as an alternative staging regime that each nation can apply on a producer-by-producer basis, giving USTR wide discretion to treat one company better than another.

People familiar with the discussions say the language gives the White House a chance to abuse the transition-plan approval process to pressure companies into making politically expedient investments. To avoid an opaque process ripe for meddling by politicians, auto companies and Congress are asking USTR to commit to uniform rules so they can plan accordingly and do not have to fear retribution for opening a plant in Mexico, for instance, instead of the US

A spokesman for Lighthizer did not respond to a request for comment. One Tiny Widgets Dizzying Journey Through the U.S., Mexico and Canada

There is precedent in the Trump administration for treating one company differently from another in its various trade battles. Apple Inc., for example, got multiple tariff reprieves after its Chief Executive Officer Tim Cook personally asked the president to exclude some of its products from the wide-ranging duties he imposed against imports from China.

Another worry, the people said, is how the White House would treat companies participating in contentious litigation on California emissions rules. The industry is split on the matter, with General Motors Co., Toyota Motor Corp. and Fiat Chrysler planning to side with the Trump administration over their rivals.

Time running out

The car industry has been publicly supportive of USMCA and is lobbying for swift approval -- mainly for the sake of much-needed certainty in an environment that has been clouded by Trumps multiple threats to withdraw from the existing Nafta. An exit from that deal would leave more than a trillion dollars in annual trade between the three countries hanging in the balance.

But compliance with USMCA is much more difficult for auto companies because of the more stringent rules that govern whether a car or auto parts qualify as made in North America and can cross borders without tariff.

Under the deal, 75% of a car has to be made in the three countries to qualify. It also needs to contain 70% of North American steel and aluminium, and 40% of a vehicle has to be made in plants with an average wage of $16 an hour or higher. The last part, in particular, is intended to shift more production and investment to the U.S. and away from Mexico.

Published on October 30, 2019

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