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April 18, 2017

North American auto industry ‘needs NAFTA’ – bank

A Canadian investment bank has said in a note that the North American auto industry needs the NAFTA regional free trade agreement, which has enabled the sector to outperform the global industry.

A Canadian investment bank has said in a note that the North American auto industry needs the NAFTA regional free trade agreement, which has enabled the sector to outperform the global industry.

Scotiabank said the Trump Administration’s push to renegotiate NAFTA has ‘created significant uncertainty for the industry in North America’. The auto sector has the ‘most highly integrated supply chain of all manufacturing industries under NAFTA’, the bank notes.

“The integration of the North American auto market has enabled the sector to outperform on a global stage,” said Carlos Gomes, Senior Economist and Auto Industry Specialist, Scotiabank. “Any new restriction to the free flow of vehicles and parts among the three countries would have a negative impact on economic activity in Canada, Mexico and the Unites States including potential job losses.”

Scotiabank says that more than 92% of all auto industry shipments from the US are now destined to the three NAFTA countries. This integration, it says, has boosted productivity and enhanced the industry’s global competitiveness, enabling it to increase its share of global exports. It adds that the US is the major supplier of auto parts to its NAFTA partners and has been a major beneficiary of the rapid expansion of assembly plants in Mexico. In particular, Mexico is now the destination for one-third of auto parts exported from the United States, up from less than 5% prior to NAFTA’s inception.

The bank says the highly integrated North American auto supply chain has enabled US auto industry employment to increase by more than five times the growth in overall manufacturing jobs.

It also warns that the supply chain under NAFTA has ‘closely tied the three economies and any interference could challenge the outperformance of the North American auto industry including potential job losses for some of the nearly 2 million positions at plants in the United States, Canada and Mexico’.

Duruing his US presidential election campaign, Donald Trump criticised international free trade agreements and suggested that NAFTA would have to be renegotiated because of the harm done to US manufacturing as companies relocated activity to low-cost Mexico. He also suggested that the US could unilaterally introduce new tariffs on imports from Mexico in order to encourage US companies to invest more in manufacturing in the US. 

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