Trade deal a mixed bag for auto industry
To TPP or not to TPP — that’s the question.
Apologies for the terrible pun but the evolving Trans-Pacific Partnership is a big deal (apologies again), particularly for the automotive industry.
Stephen Harper tried to sell the 12-nation trade bloc, touted as the largest of its kind, during his election campaign. His government reached a tentative agreement with the negotiating countries, which include the likes of the U.S., Japan and Australia. Now, the Liberals will have to pick up where he left off.
TPP comes with the same pitch as any other trade agreement. Access to new markets for our goods, we lose out if we sit out — you know the drill.
Currently, every aspect of Canada’s gains and losses from the TPP — we are still a little short on detail — is being contested. But none are as polarizing as automotive.
From what we know so far, content rules — the percentage of parts in a particular imported car that need to be made in a TPP country for no-tariff eligibility has been lowered to 45 per cent. Will that make it easier for Japanese automakers to make their cars in non-TPP, low-cost countries and import to Canada? Probably.
There are some who think the trade deal is good for the local industry, while others think it may have a devastating impact.
The reality is it won’t be one or the other. Rather, TPP outcomes will be different, depending on who you are in the automotive value chain.
If you are a Canadian auto parts maker, it may be good news. Companies such as Linamar and Magna have deep relationships with many automakers and solid product intellectual property. As vehicle production and demand grow in TPP countries such as Vietnam and Malaysia, they might be able to set up shop in these jurisdictions with greater ease. Every automaker loves a competitive global supplier with a local footprint — so the opportunities for our component makers could be big.
If you are a U.S. automaker based in Canada, you might be a little worried. Dropping tariffs from Asian imports may result in intense price competition and will turn the pressure on American companies to maintain profits without losing the market share game.
Local factory workers, already under siege, may be the worst hit. This is always hard to admit but there’s no sugarcoating it. U.S. automakers may be forced to further pull away assembly line jobs to be competitive. Local suppliers who only produce in Ontario will also face the squeeze.
Look, as far as I see it, you can’t avoid this deal.
But here’s my main beef with it — if you look at economic pacts as a means of selling only commodities and farm produce, then you are looking at it wrong. Rather, we should take this as an opportunity to identify clusters of excellence within Canada for innovating and creating products. IP is much harder to replace with cheap labour.
The trade deal may open up new markets, but if Canada continues to be stuck in the same old dig-and-sell routine, it may not be a great deal for us. Automotive or otherwise. Kumar Saha is a Toronto-based automotive analyst with global research firm Frost & Sullivan. To reach him, please email wheels@thestar.ca and put his name in the subject line.