Auto sector hopeful despite trade threats
Apotential trade deal between the U.S. and Mexico has been greeted with cautious optimism in the Canadian automotive sector despite renewed threats by U.S. President Donald Trump to impose tariffs on the industry.
Trump said Monday the U.S. and Mexico had reached a bilateral “understanding” on a trade agreement that could replace the existing North American trade agreement.
Details from the Office of the U.S. Trade Representative show the preliminary agreements include a wage provision that 40 to 45 per cent of auto content would be made by workers earning at least US$16 per hour, and increase in the auto content required from the NAFTA region to 75 per cent, up from the current 62.5 per cent.
If auto content and wage agreements go forward with Canada on board as well, they could stem the flow of auto sector jobs to lower wage jurisdictions, Unifor president Jerry Dias said.
“I believe this should stop the bleeding in Canada.”
Dias said he was concerned Trump linked potential tariffs on Canada’s auto sector to concessions on the agricultural supply management system, but said it was nothing new.
“It’s a lot of rhetoric, but ultimately he’s doing the rhetoric that he’s been doing since the beginning, that he’ll slap on tariffs if we don’t make some major moves on the importing of their agricultural goods.”
Investors have also welcomed the news, boosting automotive stocks on both sides of the border. Canadian auto parts manufacturer Martinrea International Inc. was up 6.42 per cent, Linamar Corp. was up 6.24 per cent and Magna was up 4.11 per cent in midafternoon trading on the Toronto Stock Exchange.
Bill Anderson, director of the University of Windsor’s Cross Border Institute, says he’s concerned about a condensed negotiation window now that key issues between the U.S. and Mexico look to be settled, but that the wage provision would help Canada’s sector.
“Essentially it’s a way of excluding Mexican content, so even though Canada and Mexico have presented a united front, you now have a situation where you could make the argument this will benefit Canada,” said Anderson.
“On that particular issue, what benefits the United States also benefits Canada.”
Anderson said it showed the U.S. had also made concessions during negotiations.
“It’s much better for Canada than earlier in the negotiations when they were saying that there had to be a certain amount of American content.”
The timeline for negotiations could be tight, as a deal would have to be reached by Friday to meet a 90-day notice window for a deal to be signed by outgoing Mexican President Enrique Pena Nieto.