Trump meets with Mexico, Canada to discuss NAFTA replacement

Today, President Trump said he will meet with Canadian foreign minister Chrystia Freeland – who is leaving a visit in Europe early to meet in Washington, D.C. – to discuss Canada’s potential role in a developing deal to replace the North American Free Trade Agreement (NAFTA).

While nothing in the current NAFTA plan or in the proposed deal is expected to have any direct effect on air cargo markets, the changes could have repercussions on truck-based shipping, which could have an indirect impact on road-feeder services at many North American airports.

Yesterday, Trump and Mexican President Enrique Pena Nieto spoke in a swiftly arranged conference call to discuss the details of a new agreement between Mexico and the United States, centering around Trump’s long-held call to bring auto manufacturing jobs back into the U.S. So far, the countries have agreed that the deal will:

• Raise the required percentage of parts in any car sold in North America be produced in the U.S. or Mexico to 75 percent. (At present, 62 percent of parts are required to be produced in the U.S., Mexico or Canada.)
• Require that 40 to 45 percent of auto parts in cars sold be made by workers earning at least US$16 per hour.
• Last for 16 years, to be reviewed every six years.

As of yesterday, the countries are said to be in agreement that Mexican automakers that do not comply with the new rules will pay a 2.5 percent tariff – not a change from the previous agreement – but vehicles made at new plants will pay 25 percent, incentivizing automakers to keep facilities in the U.S., or just inadvertently discourage them from operating at new facilities, said Frank DuBois, a professor at American University’s Kogod School of Business to CNBC.

At this point, it is still unclear what Canada’s participation in the deal will be, but regardless, players across the North American cross-border auto supply chain are now looking at a higher cost of doing business.

Join the discussion on cross-border trade on 10-12 October at Cargo Facts Symposium. For more information, or to register, visit www.cargofactssymposium.com.