A Reported NAFTA Auto Deal Would Backfire Against Consumers and Auto Makers Alike



Jeffrey J. Schott | Peterson Institute for International Economics

The United States and Mexico are considering changes to the auto chapter of the North American Free Trade Agreement (NAFTA) that would introduce new and more complex criteria regarding the North American content of assembled cars and trucks, according to Inside U.S. Trade. If implemented, these changes would raise the cost of cars and trucks produced in North America and possibly reduce the sale of cars assembled in North America, the opposite of the intended effect.

If this proposed change to NAFTA seems illogical and counterproductive, you’re right. Raising the cost of producing a car or truck in North America is not a good recipe for commercial success. Foreign producers don’t have to follow the convoluted NAFTA requirements to sell their cars in the US market; instead, US auto importers merely pay a 2.5 percent tariff—which doesn’t require them to meet any domestic or regional content criteria. So if the proposed NAFTA content rules force North American automakers to switch to higher priced local suppliers, and the added cost is more than the current import tariff, NAFTA will actually benefit importers by giving them a price advantage over North American production…

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