The proposed reworking of a North American trade pact touted as helping the U.S. automotive industry could wind up doing the opposite, according to an analysis by the Center for Automotive Research.
The independent think tank said a recently announced deal between the U.S. and Mexico could lead to higher vehicle prices and fewer cars available to consumers while failing to bring more jobs to America.
South Carolina has much at stake in any new deal, with three major vehicle makers — Volvo Cars, Mercedes-Benz Vans and BMW — operating plants in the Palmetto State. The state's automotive industry generates $27 billion a year in economic impact.
The agreement with Mexico has not been ratified and Canada is still negotiating its terms to replace the nearly 25-year-old North American Free Trade Agreement that governs trade between the three countries.
President Donald Trump called the Mexican deal, reached in late August, "a big day for trade ... a big day for our country." He said the agreement puts pressure on Canada to join the pact. Canadian officials told Reuters on Friday that they expect a new treaty to be signed by the end of this month.
The proposed agreement with Mexico would require 75 percent of a vehicle's total value to be produced in North America in order for a manufacturer to import it into the U.S. for free. That's an increase from the 62.5 percent requirement under NAFTA.
Also, between 40 percent and 45 percent of vehicles would have to be made by workers earning at least $16 an hour — an amount more than double the $7.34-per-hour average for Mexican auto workers.
The Trump administration believes the higher-wage rule will drive manufacturing jobs to the United States, were vehicle assembly jobs pay an average of $22.35 per hour, according to the U.S. Bureau of Labor Statistics.
But the Center for Automotive Research said Mexican factories will instead pay the 2.5 percent tariff on cars that fail to meet the rule and pass those costs along to consumers. The tariff on pickup trucks and cargo vehicles would be 25 percent.
All told, the tariffs would add between $470 and $2,200 to the price of a vehicle, the research group said, and as many as 150,000 fewer annual sales.
"The main takeaway so far is there is no giant influx of jobs coming into the U.S.," Kristin Dziczek, vice president for industry, labor and economics at the Ann Arbor, Mich.-based Center for Automotive Research, told the cable TV network CNBC.
About 30 percent of Mexican-made cars exported to the United States would not meet the new requirements, including popular models like the Volkswagen Jetta and Golf, the Nissan Sentra and Ford's Fusion. The list will be longer if Canadian parts are not part of the mix under a new treaty, said the research group.
It's not clear what specific impacts a new North American trade pact would have on South Carolina's vehicle manufacturers.
BMW, which builds SUVs in the Upstate, told Bloomberg News it welcomes a “modernization” of the trade accord but any final decision must allow duty-free trade to continue. BMW also called the 75 percent threshold on parts "ambitious."
Volvo Cars CEO Hakan Samuelsson has opposed any type of tariff that threatens the industry. Volvo's $1.1 billion plant in Berkeley County began producing S60 sedans this month. It plans to add CX90 SUVs to the production line by 2021.
"If you have trade barriers and restrictions, we cannot create as many jobs as we are planning to," Samuelsson said when Volvo unveiled the redesigned S60 in June. Volvo expects to hire 4,000 people at its campus near Ridgeville, but Samuelsson said tariffs and trade disputes could cut that number in half.
Executives with Mercedes Benz Vans, which this week opened a $500 million plant that builds Sprinter vans in North Charleston, announced prior to a news conference Wednesday that they would not take questions on trade matters.
"In general, however, we can say that we love open markets and competition," said Han Tjan, spokesman for the van maker. "Free trade benefits economies in Europe and the United States."