Weekly News Review | 28 August 2018 | Automotive Purchasing and Supply Chain Automotive Purchasing and Supply Chain

Talking Point

Canada - the catalyst to the NAFTA deadlock?

It has been a week riven with fascinating contrasts in the auto industry globally; with the news that US President Donald Trump stating that the United States and Mexico have reached a bilateral trade 'understanding' that could lead to an overhaul, or perhaps the termination, of the three-country North American Free Trade Agreement (NAFTA), contrasted with Nissan’s statements that it will invest $170 million in its two main US plants, and Volkswagen reaching the milestone of 12 million vehicles produced in Mexico.

As reported previously here in Automotive Purchasing and Supply Chain, the ‘new’ NAFTA agreement could see automakers being required to manufacture at least 75% of a vehicle’s value in North America (this is up from up from 62.5% in the previous negotiations), in order to qualify for zero tariffs. Car makers will also be required to use more local steel, aluminium and supplied components parts. Added to this is a labour agreement which could stimulate employment in the US and Mexico; a proportion (still to be agreed) will have to be manufactured by operators earning a minimum of $16 per hour.

With the Canadian auto workers union UNIFOR approving the new terms in principle, it would seem that President Trump’s invitation to the Canada administration to join what he has called ‘The United States-Mexico trade agreement’, will help to break the deadlock.

Canadian Foreign Affairs Minister Chrystia Freeland arrived in Washington on August 28, intending to help speed negotiations with the United States and Mexico on the future of NAFTA, amidst Trump’s threats that if Canada can't reach a new trade deal, then he will impose what he has called ‘devastating tariffs’ on automotive imports, on both vehicles and components. This is against the backdrop of a long-time and very healthy Canada-Mexico trade ‘corridor’, with companies such as Ford, Nissan, Magna and Linamar having established very efficient manufacturing and assembly bases in both countries, benefiting from the lower labour cost base of Mexico and the high skill levels available in Canada. If the tariffs are imposed, taxes on completed vehicles will be good for Mexico, and charges on components will be better for Canada.

Whatever happens, it clear that there is more will for a fair settlement in Canada and in Mexico than perhaps in the White House and it seems that Canada will lead the way in breaking what has looked like the most significant deadlock for the automotive industry in recent times.

Sam Ogle

Simon Duval Smith

Simon Duval Smith

Global News Editor:
Trisha Chowdhury

Sam Ogle

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