Withdrawal from NAFTA Expected to Kill Jobs in US Auto Industry

Researchers have warned that the automotive industry would suffer if the US went ahead with a withdrawal from NAFTA, adding that as many as 50,000 jobs would be eliminated by the move.

A new border adjustment tax (BAT) on goods from Mexico is also expected to hit the US auto industry hard, eliminating up to 45,000 jobs and increasing car prices by more than US$1,000 per unit, according to a study by Boston Consulting Group (BCG) and the Motor Equipment Manufacturers Association (MEMA).

“Vitality in the motor vehicle sector hinges on a globally integrated supply chain,” said Xavier Mosquet, Senior Partner at BCG and lead author of the study. “Introducing new tariffs, a border tax, and a retreat from NAFTA would greatly impede the industry’s relatively smooth and cost-effective flow of goods across borders in North America and around the world.”

If tariffs are increased, car prices will rise, so frugal consumers will likely forgo certain vehicle features, such as rearview cameras or automatic braking and parking functions. Such a scenario would lead to these extensive job cuts in the US automotive industry.

The study found that US tariffs of 20-35% would add $16-27 billion to US automotive costs. A 20% tariff on imports from Mexico, responsible for 50% of components used in US cars, would translate into an average US$650 increase in per-vehicle production costs.

Reportedly, auto makers would rather sell fewer cars in the United States than relocate their manufacturing plants, as it would take them nine years to recover their initial investments.

The report follows news of a proposal submitted to US Congress about imposing a border adjustment tax or new duties on goods imported from Mexico and Canada.