The Trump administration has set a collision course with the auto industry as it launches renegotiations of the 23-year-old NAFTA trade pact this week, aiming to shrink a growing trade deficit with Mexico and tighten the rules of origin for cars and parts.
More than any other industry, autos have been the focus of U.S. President Donald Trump's anger over the North American Free Trade Agreement, which he blames for taking car factories and jobs away from America to low-wage Mexico.
The United States had a $74 billion trade deficit with Mexico in autos and auto parts last year, the dominant component of an overall $64 billion U.S. deficit, according to U.S. Census Bureau data.
"The Trump administration has framed their NAFTA negotiating objectives around reducing the trade deficit with Mexico," said Caroline Freund, a senior trade fellow at the Peterson Institute for International Economics. "If they don't touch autos, there's no way of getting at what they want."
Among tools that U.S. Trade Representative Robert Lighthizer may seek to boost auto employment in the U.S. is strengthening the rules of origin to shut out more parts from Asia, and possibly an unprecedented U.S.-specific content requirement for Mexican vehicles.
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Lighthizer's negotiating objectives for NAFTA seek to "ensure the rules of origin incentivize the sourcing of goods and materials from the United States and North America," which has raised concerns among auto industry executives and trade groups that he will seek a deal that guarantees a certain percentage of production for the United States.
The industry is opposed to such a carve-out or to increasing the percentage of a vehicle's value that must come from the region above the current 62.5 percent — already the highest of any global trade bloc.
They say this would raise costs and disrupt a complex supply chain that sees parts crisscrossing NAFTA borders and has made North American car production competitive with Asia and Europe.
"Our members feel very strongly that rules of origin are not the tools to use to reshore jobs into the U.S.," said Ann Wilson, senior vice president of government affairs for the Motor and Equipment Manufacturers Association, a trade group representing auto parts makers.
Wilson and other industry advocates say a better way to boost U.S. manufacturing jobs is through policies aimed at expanding vehicle exports.