BAIC may play role in NAFTA talks

As Canada, Mexico and the US attempt to rework the North American Free Trade Agreement, a Chinese car maker’s expansion plans mightlurk in the background of the negotiations, observers said.

Last week, State-owned BAIC said it intends to export cars it makes in Mexico to Canada and the US in 2018. The decision comes as the countries concluded a fifth round of talks to overhaul the North American Free Trade Agreement (NAFTA) earlier this month with major differences unresolved, casting doubt on whether a deal can be reached by next March as planned.

US President Donald Trump has threatened to withdraw from NAFTA unless it can be changed, arguing that the pact has hollowed out American manufacturing and caused a trade deficit of more than $60 billion with Mexico.

Gary Hufbauer of the Washington-based Peterson Institute for International Economics said the BAIC announcement “will certainly play into the NAFTA talks. Trump could go ballistic. Depending on the overall framework of US-China relations, he could make a big point of using the BAIC project as an argument for the 50 percent made-in-the US auto rule of origin and possibly other protectionist measures,” he wrote in an email.

Hufbauer said the established auto companies will not welcome fresh competition from BAIC. “But they have a stronger interest in avoiding new barriers to trade within NAFTA – rules of origin, especially. So I don’t think the established companies will lobby for protectionist measures against BAIC,” he said.

Kristin Dziczek of the Center for Automotive Research in Ann Arbor, Michigan, doesn’t believe that BAIC selling cars inCanada and the US will be large enough to affect the negotiations. “But a toughening of rules of origin or NAFTA withdrawal or collapse may thwart the automaker’s plans to enter the second-largest global automotive market,” she said in an email.

Yang Nanhua, director general of BAIC in Mexico, said the plan would go into action “unless something drastic happens with NAFTA.”

Bruce Belzowski of the University of Michigan Transportation Research Institute said, “The Chinese are very small players in this game. The US negotiators are much more focused on the US, Japanese, Korean, and EU companies in Mexico. That being said, what happens to the major auto companies in Mexico will also apply to the Chinese.”

Dziczeknoted that there are Chinese-made imports already in the US, such as the Buick Envision and the Volvo S60. “Consumers seem accepting of these captive imports/legacy brands; it remains to be seen how consumers will react to Chinese-branded vehicles. The distribution network will be challenging without a partner unless BAIC is pursuing only targeted metro areas,” she said.

Dziczek also said that Chinese-built vehicles currently sold in the US have not been political targets. “Chinesebranded vehicles. especially those manufactured in Mexico, may be a different story,” she added.

“I don’t think any of the existing players in the US market will alter their plans after BAIC comes in. New entrants can take a long time to convince American consumers of their quality and reliability, plus BAIC has to introduce itself to consumers,” said David Whiston, industry analyst with Morningstar Inc.