President Donald Trump spent Monday morning signing a flurry of executive orders, including an expected decision to withdraw the nation from his predecessor’s signature trade deal, the Trans-Pacific Partnership. The move certainly won’t have as significant of an impact to the auto industry as withdrawal from NAFTA could be, but the ramifications it could have for automakers are difficult to unpack.
At a press briefing Monday afternoon, White House press secretary Sean Spicer said the U.S. is entering a new era for trade policy. “This type of multinational agreement is not in our best interest,” he said. Instead he said the U.S. will focus on bilateral trade agreements with other countries.
The 12-country treaty included Canada, Mexico, Japan, and several nations in the Pacific Rim, and would’ve encompassed roughly 40 percent of the world. Generally, it would’ve reduced tariffs, with the U.S. having up to 30 years to phase out tariffs on cars and light trucks imported from Japan.
This was key, as The Detroit News described it in the fall 2015, when the deal was unveiled. But it essentially made it so the impact of TPP to the U.S. auto industry was limited:
The pact basically preserves the status quo on trucks in the United States, the most profitable part of the market. A tax on trucks brought into the U.S. has forced foreign carmakers to build truck and SUV plants in the United States, and kept some would-be competitors out of the truck market that is dominated by the Big Three.
A delayed elimination of the truck tax came after negotiators agreed in the final days of the negotiations to a 30-year phaseout on tariffs for some dairy products in all the countries in agreement.
Malaysia and Vietnam would’ve eliminated 70-75 percent of U.S. automotive exports within four years of the TPP being implemented, according to the International Trade Administration.
Still, automakers weren’t exactly thrilled about the deal. Ford, particularly, highlighted how the TPP failed to prohibit currency manipulation.
“U.S. lawmakers took unprecedented action to set a clear negotiating objective for addressing currency manipulation in all future trade deals,” Ziad Ojakli, group vice president of government and community relations for Ford, told the News at the time. “The TPP fails to meet that test. To ensure the future competitiveness of American manufacturing, we recommend Congress not approve TPP in its current form, and ask the administration to renegotiate TPP and incorporate strong and enforceable currency rules.”
Beyond that, TPP would’ve reportedly lowered the rules of origin threshold, which dictate how much of a vehicle must be produced locally, to 45 percent. The North American Free Trade Agreement, or NAFTA, has a 60 percent local origin threshold for auto parts; for finished vehicles, it’s 62.5 percent.
Trump’s pick for U.S. Commerce Secretary, Wilbur Ross, took issue in particular with this TPP provision, saying at his congressional confirmation hearing that it wasn’t “consistent with what had been advertised.”
“In automotive, for example, it permits more than 60 percent of the content of the car to come from outside TPP and yet have all the tariff benefits,” Ross said. “That didn’t strike me as the world’s best idea, particularly from the point of view of protecting the automotive industry because in in automotive 70 percent of the jobs come are in parts suppliers.”
Just how much of an impact it could have is difficult to pin down. A 2016 report from Democrats on the Senate Ways and Means Committee criticized the rules, for instance, and said it could be expected to harm the industry, “But the magnitude of the harm is difficult to assess.”
If any party is upset about Trump finally moving ahead with his pledge, it’s probably Japanese automakers. As Automotive News reported at the time of the deal’s unveiling, TPP would’ve given “Japan’s automakers almost unfettered access to 11 other countries.”
Japan also would’ve benefited from the lowered rules of origin threshold, because it would’ve allowed automakers there to ratchet up efforts to import auto parts from China, while still qualifying for the TPP protections. (Perhaps that means Ross’s remarks should be viewed as a comment about what impact the TPP would’ve had on American automakers.)
So the upshot is that things remain as is, at least, for now: Trump’s team is indicating that a reworking of NAFTA is still in the pipeline. To that end, there’s plenty to consider.