NAFTA's Direction Unclear; Auto Industry Worried, Milk Producers Heartened

Kellie Meiman Hock, a managing partner at McLarty Associates, said the parties could return to negotiating in July, but progress could continue to be slow because of all the U.S. demands that are intolerable to Canada and Mexico. She said the administration could acknowledge progress is stalled and say it will return to the table next year. A skinny NAFTA, arranged around auto rules of origin, could be reached, but it would have to get a vote in Congress, and that wouldn't happen until next year. And, she said, President Donald Trump could announce he's withdrawing from NAFTA in the run-up to the midterm elections. "I think that will be incredibly tempting for him," she said. Hock and other panelists were at a Washington International Trade Association event June 21.

A NAFTA exit would be very bad for the auto industry, said John Bozzella, CEO of Global Automakers. "Autos are the starkest example, but not the only example, of how integrated our supply chains are," he said. But 25 percent tariffs on imported autos and auto parts would be even worse. He said thinking about how NAFTA will change auto rules of origin seems almost quaint at this point. "I can't find a single company that is calling for protection from foreign competition," he said. "There isn't a single group of employees calling for it either." Bozzella said automakers have a seat at the table with the U.S. trade representative, but he can't say that their views are influential. "What I'm hearing is: We need fewer imports," he said.

Bozzella said the administration doesn't seem to understand how American auto manufacturing has changed in the last 30 years. There are 13 car companies with assembly factories in the U.S. -- a Volvo factory opened in South Carolina June 20, he said. Half of the car companies making cars in the U.S. are foreign-owned. There are more cars and trucks built in America now than there were before NAFTA, and U.S. plants export more than twice as many vehicles as before NAFTA. "We're winning with NAFTA," he said.

He said his members might be able to live with a new rules of origin standard that gives credit for $15-an-hour wages, but it depends on what other elements the rule has. The current U.S. proposal is "very, very complex," with different standards for different components, and not meeting the percentage on any one of those components could mean the car could not qualify for duty-free status under NAFTA, he said.

If a tariff on auto parts were to be implemented, Bozzella said, every car sold in the U.S. would become more expensive, not just those assembled in Mexico, Japan, Canada, Germany or South Korea. "The most American car made in this market has about 70 percent U.S. content," he said.

Could Congress stop tariffs on auto imports because members don't believe those tariffs honor the intent of the national security clause that gives the president vast authority to implement tariffs?

"It will take some courage from Congress, which is currently lacking, to change that," Hock said. "Bottom line: Nobody wants to be the next Mark Sanford, and that's why you don't see a lot of courage. I don't think you will until after the midterms." Sanford, a Republican congressman from South Carolina and sometime Trump critic, was defeated in a recent primary.

Jim Mulhern, CEO of the National Milk Producers Federation, did not express alarm about the prospect of a NAFTA exit and a new strategy of bilateral U.S.-Mexico and U.S.-Canada agreements. His members are angry about protections for Canadian dairy farmers, which have resulted in powdered skim milk from Canada being dumped, they say. They demand that Canada change its dairy policies as part of a new NAFTA. "If it takes doing these separately to do a deal, we can support that," he said.