NAFTA allows for free trade on a number of goods between United States, Mexico and Canada [2]. On cars and trucks, duty-free imports and exports among the three nations are allowed as long as 62.5% of the cars can be traced to one of the three [3]. According to Driving American Jobs, it allowed US car industry to remain globally competitive.<\/p>\n
President Donald Trump made it clear his intentions of either withdraw from NAFTA or to renegotiate major rules: he aims to increase the percentage produced in one of the three countries to 85% and to impose a threshold of 50% for how much is produced in US, in an attempt to create more jobs in the country [4].<\/p>\n
However, nowadays vehicles are built on global platforms. They use global supply chains, and are sold in markets all over the world [5]. Global supply chain has become so diverse and complex that assigning country-of-origin status to every component has become difficult or impossible [6]. Auto parts come from every place in the world, and if players are no longer able to use a global supply chain to find the best value, they will no longer be able to compete against a vehicle that is made in Europe or Asia [7]. Off-shoring to \u201cbest cost\u201d countries is an integral aspect of the global supply network, and contributes to higher productivity levels in the overall industry. This results in lower prices for consumers and return on capital for investors [8].<\/p>\n
For example, for US automakers, Mexico plays an important role in the supply of cheaper auto parts. It represented approximately 40% of the top 35 imports in auto parts in 2017 [9]<\/p>\n
<\/p>\n
Figure 1 – U.S Imports of Automotive Parts <\/p>\n GM reactions<\/strong><\/p>\n With that context in mind, it seems clear why GM has taken part in a movement to prevent harmful changes in NAFTA agreements. Joining Drive American Jobs was an important step in a battle that has been going for some time. The company has been resisting some attacks from the president.<\/p>\n In the beginning of this year, Trump publicly criticized GM in his twitter account for manufacturing its Chevy Cruze in Mexico and then sending it tax free to USA. \u00a0GM responded to Trump\u2019s tweet, saying it\u00a0makes most of its Chevy Cruze models in the United States and sells only a “small number” of one model made in Mexico in the U.S. [10]<\/p>\n Figure 2 – Trump tweet Source: CNBC<\/p>\n <\/p>\n Even after the criticism, GM stated publicly that it would not change its plans. Its small-car production would stay in Mexico, since manufacturing and plant investments are not easily changed [11]. GM\u2019s CEO, Marry Barra, made it clear that GM would not alter its global manufacturing strategy to comply with political pressure [12]. The strategy remained the same some months later, when GM also stated that it would continue with its plans to shift production of GMC Terrain vehicles to its Mexican plants [13].<\/p>\n It appears that the company\u2019s short and long term strategy has been standing against Trump\u2019s protectionism movement and trying to avoid it at any costs. Since the stakes are so high, the company is putting its efforts to partner with others in the sector to get it voice heard.<\/p>\n What is next?<\/strong><\/p>\n The future is unclear. Should GM still hope and bet that NAFTA will continue going on? Or should it take other measures to absorb the impact of the possible end of NAFTA?<\/p>\n The company has been doing a great job in being true to its values and resisting the new era. However, given the uncertain scenario, GM should analyze its supply chain, think about the possible scenarios and what it would do in each one of them. It should be prepared for the worst case scenario.<\/p>\n If US really withdraws from NAFTA, GM\u2019s costs in its American operations will probably increase due to higher import charges. It might be a cost that the company can\u2019t afford and it will be tempted to move production to lower cost countries. Will that be possible? In order to address these questions and other concerns, the company should conduct studies to understand impact in its supply chain, risks involved and possible solutions.<\/p>\n (790, without Figures legend and sources)<\/p>\n References<\/strong><\/p>\n [1] Ryan Beene, \u201cAuto Industry Campaign Aims to Steer Trump Away From Quitting Nafta\u201d, Bloomberg Politics, October 24, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-10-24\/auto-industry-campaign-aims-to-steer-trump-away-from-nafta-exit<\/a>, accessed November 2017<\/p>\n [2] \u201cHow the US automotive industry may be impacted by the new administration\u201d, PWC Automotive Series, April 2017, https:\/\/www.pwc.com\/us\/en\/industrial-products\/publications\/assets\/pwc-new-administration-impacts-auto-industry.pdf<\/a>, accessed November 2017<\/p>\n [3] David Kiley, \u201cTrump’s NAFTA Threats Put Auto Industry On Offense\u201d, Forbes, October 25, 2017, https:\/\/www.forbes.com\/sites\/davidkiley5\/2017\/10\/25\/trumps-nafta-threats-put-auto-industry-on-offense\/#1c9061f644bc<\/a>, accessed November 2017<\/p>\n [4] \u201cNAFTA Negotiation Update: Auto & Parts Sector Implications\u201d, CAR, October 13, 2017, http:\/\/www.cargroup.org\/nafta-negotiation-update-auto-parts-sector-implications\/<\/a>, accessed November 2017<\/p>\n [5] Dziczek, Kristin, Bernard Swiecki, Yen Chen, Valerie Brugeman, Michael Schultz and David Andrea. (2016). \u201cNAFTA Briefing: Trade benefits to the automotive industry and potential consequences of withdrawal from the agreement.\u201d Center for Automotive Research, Ann Arbor, MI.<\/p>\n [6] David Kiley, \u201cTrump’s NAFTA Threats Put Auto Industry On Offense\u201d, Forbes, October 25, 2017, https:\/\/www.forbes.com\/sites\/davidkiley5\/2017\/10\/25\/trumps-nafta-threats-put-auto-industry-on-offense\/#1c9061f644bc<\/a>, accessed November 2017<\/p>\n [7] Danielle Paquette, \u201cPush for all-American cars will kill American jobs, auto suppliers say\u201d, Chicago Tribune, September 25, 2017, http:\/\/www.chicagotribune.com\/business\/ct-nafta-american-cars-20170925-story.html<\/a>, accessed November 2017<\/p>\n [8] Dziczek, Kristin, Bernard Swiecki, Yen Chen, Valerie Brugeman, Michael Schultz and David Andrea. (2016). \u201cNAFTA Briefing: Trade benefits to the automotive industry and potential consequences of withdrawal from the agreement.\u201d Center for Automotive Research, Ann Arbor, MI.<\/p>\n [9] International Trade Administration, \u201cAutomotive Parts Exports and Imports (PDF file), downloaded from International Trade Administration website, https:\/\/www.trade.gov\/td\/otm\/autostats.asp<\/a>, accessed November 2017<\/p>\n [10] Jacob Pramuk, \u201cTrump blasts General Motors: Make Chevy Cruze model in US or ‘pay big border tax’\u201d, CNBC, January 3 2017, https:\/\/www.cnbc.com\/2017\/01\/03\/trump-blasts-general-motors-make-chevy-cruze-model-in-us-or-pay-big-border-tax.html<\/a>, accessed November 2017<\/p>\n [11] Madeline Farber, \u201cGeneral Motors CEO Mary Barra Says Donald Trump\u2019s Threats Won\u2019t Change the Company\u2019s Plans\u201d, Fortune, January 9 2017, http:\/\/fortune.com\/2017\/01\/09\/donald-trump-general-motors-mary-barra\/<\/a>, accessed November 2017<\/p>\n [12] Paul A. Eisenstein, \u201cGM\u2019s $1B Investment Is Not Driven by Trump and Likely Dates Back to 2014\u201d, NBC News, January 17 2017, https:\/\/www.nbcnews.com\/business\/autos\/gm-s-1b-investment-not-driven-trump-likely-dates-back-n707661<\/a>, accessed November 2017.<\/p>\n![\"\"](\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Autoparts-import-1.png\")
<\/a>\u00a0 \u00a0 \u00a0 \u00a0Source: Data excerpted from International Trade Administration<\/p>\n<\/a><\/p>\n