President Trump's claims about NAFTA and the US auto industry

Editor's note: Today, fact-finding agencies in the United States, Mexico, and Canada are simultaneously conducting fact-based audits of the North American Free Trade Agreement. President Bill Clinton launched his appeal for NAFTA approval 25 years ago this month and, of course, President Trump has promised to end the deal.

This project was developed during a regional discussion at Fifth Annual Global Auditors Meeting in Rome. We will add links to the work of our partners during the day. (Here Canada Fact Check.) We have also included links and brief descriptions of our previous NAFTA fact checks at the bottom of this article. Articles will be promoted on Twitter via the #NAFTAcheck hashtag. – Glenn Kessler

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"We lost thousands of factories and millions of jobs because of NAFTA – thousands. Think about it: thousands of factories, millions of jobs. We turn it. Chrysler is already coming back with car factories. Many companies are now in Michigan, Ohio, at different locations in Pennsylvania. They build beautiful new car plants. Nobody thought to see that happen. "

– President Trump, in remarks to the White HouseApril 12, 2018

NAFTA has transformed the US auto industry by removing Mexico's restrictive trade barriers and allowing automakers to expand their supply chain and production facilities in North America. This means that Canada, Mexico and the United States operate as an integrated automobile market, with the three countries generally getting a share of the action when a car is sold.

Most economists see it as an effective configuration that maintains the competitiveness of North American-based automakers. For example, relatively inexpensive labor in Mexico helps North America compete with low-cost labor in Asia.

But Trump complains that the costs of NAFTA – "thousands of factories and millions of jobs" – have been too high for American workers. He goes on to say that things are improving now that his president, with new auto factories, is popping up in several states along the rust belt.

Trump has a habit of exaggerating the effect of NAFTA on the US economy. These statements appear 46 times in The Fact Checker's database of Trump's false or misleading statements. The president also tends to boast, sometimes wrongly, of building new factories. So how do these claims about NAFTA and the auto industry stand up?

Facts

The NAFTA came into force on January 1, 1994, including the lifting of tariffs and other trade barriers in Canada, Mexico and the United States.

As a result of NAFTA, the three countries are an economically integrated market, particularly for the automotive industry. The parts and motor vehicles produced in each country move freely across borders, without customs duties or other restrictions, as thousands of parts suppliers serve the car manufacturers that manufacture the vehicles. This is what is called the "motor vehicle supply chain".

There is no doubt that the manufacturing sector has declined in the United States in recent years. Since 1994, the United States has lost about 4 million jobs in the manufacturing sector and tens of thousands of factories have closed, according to Labor Bureau and Census statistics.

But NAFTA is not the only significant development of these 24 years, so its effect on the US economy is hard to isolate. "The assessment of NAFTA faces a daunting challenge: separating the effects of agreement from other factors. Trade with Mexico and Canada was already developing before NAFTA and would probably have continued to do so without an agreement, "according to a report published in May 2017 by the Congressional non-partisan research service.

"Since the creation of NAFTA, US auto production has grown by more than a million vehicles a year," said Wade Newton, spokesperson for the Alliance of Automobile Manufacturers. "This is a huge benefit for US auto and auto parts. NAFTA has created a strong regional bloc that supports a healthy and expansive automotive supply chain in the United States, Canada and Mexico. This regional supply chain allows the creation of jobs in the United States rather than inhibiting it.

During the same 24-year period, the United States experienced an economic slowdown in the early 2000s and a recession in 2008 and 2009. Mexico experienced a recession in the early 1990s. China joined the United States. World Trade Organization and became a manufacturing giant in the early 2000s. Technological advances have led to greater automation of industries. These and other developments have all had an effect on the decline of US manufacturing output.

"In reality, NAFTA did not cause the huge job losses that were feared by the critics or the large economic gains predicted by the supporters," according to the CRS report. "The overall net effect of NAFTA on the US economy appears to have been relatively modest, mainly because trade with Canada and Mexico accounts for only a small percentage of US GDP . However, adjustment costs for workers and businesses have changed, as the three countries have adapted to more open trade and investment. "

Trade with Mexico and Canada accounted for less than 5% of US GDP when NAFTA came into effect, the report adds, and "Bilateral trade with Mexico accounted for an even smaller percentage of GDP (1.4%). %) In 1994".

A separate report from the Congressional Budget Office in 2003 concluded that "it is possible to conclude that NAFTA has increased annual US GDP, but by a very small amount – probably not more a few billion dollars, or a few hundredths of a percentage.

We asked the White House to collect data on Trump's claim that NAFTA caused the loss of "thousands of factories and millions of jobs", but we received no response.

Prior to NAFTA, Mexico had heavy trade barriers for the auto industry. The trade agreement eliminated Mexican tariffs of 20% or more for cars and auto parts, lifted restrictions on foreign auto production, lifted the import ban on finished vehicles and relaxed other restrictions. The country is today one of the leading suppliers and customers of vehicles manufactured in the United States.

According to the Independent Center for Automotive Research, strengthening NAFTA poses risks for the auto industry. The group found in an April report that each world's auto-producing region relies on cheap labor to be competitive and it is not clear that the US could recover some of the functions have been outsourced to Mexico since 1994. "Put in place a very rigorous automotive ROO [domestic production requirement] in order to bring the manufacturing sector back to the United States and the NAFTA region, this could have the opposite effect if the content objectives are too high or the rules are too heavy, " said the report of the CAR.

Here is an example of the risks:

"In 2017, Ford Motor Company decided to cancel the transfer of Focus's production in Mexico and to buy the Focus from an existing factory in China.The direct consequence of this decision is that there is less jobs in the United States, transmissions) and other parts for the Focus, these parts being mainly manufactured in Asia for Chinese production, the Michigan plant that currently produces the Focus will be remanufactured to build the Ford Ranger and more The Bronco later use engines from Ford Engine's factories in Cleveland and Lima, Ohio, and the transmissions will come mainly from transmission facilities in Livonia, Michigan.

"Based on other sources of supply that are not yet publicly available and the sales volumes of these vehicles, the Michigan plant will likely support more jobs in the US, Canada and Mexico. is a net positive for the United States, but the economic impact could have been stronger if Focus's production had been transferred to Mexico instead of China. "

Trump renegotiated NAFTA just as its administration imposed new tariffs on steel products and is considering additional tariffs on cars. According to the Council on Foreign Relations, steel prices could cost 40,000 jobs. According to Bloomberg News, industry representatives have widely criticized car rates. Ann Wilson, Senior Vice President of Government Affairs at the Motor and Equipment Manufacturers Association, said at the hearing that "imposing tariffs is a risk to our economic security that jeopardizes jobs and investments. suppliers in the United States ".

Finally, although Trump claims that new car plants are being built in Michigan, Ohio, and Pennsylvania, it's important to keep in mind that some of these investments, such as Chrysler moving a production line from Mexico to Michigan , do not concern new factories. (Chrysler said the Mexican plant will remain open, doing other work, and the Michigan plant already exists.) We have found no evidence of a new car plant in Pennsylvania since the arrival of Trump.

The Pinocchio test

It is clear that millions of manufactured jobs and thousands of US manufacturing establishments have disappeared since NAFTA came into force in 1994. What is less clear is because from NAFTA. The studies we reviewed indicate that NAFTA has had a modest effect on the US economy. Representatives of the auto industry and independent analysts appear to be d & # 39; agree that the dynamics of NAFTA has rather helped automakers in the United States than to hinder them.

The White House did not provide any information to support Trump's claims about NAFTA's record of jobs in the United States or new car plants under construction in Michigan, Ohio and Pennsylvania.

We have no doubt that American jobs ended up in Mexico as a result of NAFTA. But the president gives a misleading picture of the effect of the treaty on the US auto industry, without providing data to support his case. He wins three Pinocchios.

Three pinocchios

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