Ford Vindicates Trump on NAFTA

Ford Vindicates Trump on NAFTA

Editor: Vladimir Bajic | Tactical Investor

Ford Vindicates Trump on NAFTA

The North American Free Trade Agreement entered into force on January 1, 1994, eliminating most barriers to free trade between the United States, Canada, and Mexico. [1] Ford Motor Company was one of many companies able to benefit by optimizing its manufacturing operations without the distortion of tariffs and other customs barriers. Today the Company has three manufacturing facilities in Mexico

In the short term, as a leading U.S. corporation, Ford has a voice it can contribute to the conversation. Ford’s President of the Americas, Joe Hinrichs, has suggested focusing NAFTA changes on reducing foreign exchange manipulation and streamlining safety and other vehicle standards across the three countries. [8] Ford’s former CEO Mark Fields was also vocal about the negative impacts of isolationism and indicated the company was in direct communication with the Trump administration on the topic. [9]

In the medium term, Ford is adjusting its decisions on capital allocation. In 2016, Ford announced it would build a $1.6 billion plant in San Luis Potosi in Mexico to build its Ford Focus model and create 2,800 jobs. [10] That decision came under attack from then-presidential candidate Donald Trump. In 2017, the Company announced it would instead be building the Focus in China, where it could save $1 billion in investment costs. [10] The move underscored the Company’s reluctance to invest additional production in Mexico amidst uncertainty and the increased interest in low-cost manufacturing options outside North America altogether. Full Story

NAFTA Update

Under the United States-Mexico-Canada Agreement, automakers will have to produce cars with 75% of parts originating from the U.S., Canada or Mexico to qualify for duty-free treatment. The requirement referred to as “rules of origin,” is an increase from 62.5% under current North American Free Trade Agreement rules. In addition, 40-45% of an auto’s content must be made by workers earning at least $16 per hour. Vehicles not meeting the requirements will be subject to a 2.5% duty.

“Everybody said this was a deal that could not be done,” Trump said during the signing ceremony at the White House. “Too complicated, too big, couldn’t be done. we got it done. And today, we are finally ending the NAFTA nightmare and signing into law the brand new U.S-Mexico-Canada Agreement.

“The USMCA is the largest, fairest, most balanced and modern trade agreement ever achieved. There’s never been anything like it,” Trump continued. “The USMCA is estimated to add another 1.2% to our GDP and create countless new American jobs. It will make our blue-collar boom, which is beyond anybody’s expectation, even bigger, stronger and more extraordinary, delivering massive gains for the loyal citizens of our nation.”  Full Story

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