President Donald Trump distorted some facts about trade in a press conference announcing an agreement to replace the North American Free Trade Agreement with the United States, Mexico, Canada Agreement, or USMCA:
- The president said the new deal will close “terrible loopholes,” claiming foreign companies ship auto parts to “Mexico and Canada for assembly and send their foreign-made cars into the United States with no tax.” That’s misleading. NAFTA imposes a 2.5 percent tariff on cars made with less than 62.5 percent of auto parts from North America. The new deal increases that to 75 percent.
- Trump said, “Since NAFTA’s adoption, the United States racked up trade deficits totaling more than $2 trillion.” Going back to 1994, when NAFTA went into effect, the U.S. trade deficit in goods and services with Mexico and Canada is $1.58 trillion, according to Bureau of Economic Analysis figures.
- The president suggested that NAFTA was responsible for all of the decline in manufacturing jobs since it took effect — a drop of 4.1 million. But the U.S. gained a net 37 million jobs over that time period, and economic studies say the trade deal had a small overall impact on jobs.
- He claimed that while U.S. companies pay 25 percent to export cars to China, the U.S. has a 2.5 percent tariff on cars imported from China, but “we don’t collect it.” The U.S. does collect it, industry experts told us. And Trump is using outdated figures on the tariffs.
- The president repeated several claims he has made before, such as inflating U.S. trade deficit figures by excluding services, and claiming that U.S. Steel is “building eight or nine plants.” We previously found no evidence of that when the president’s claim was just “seven plants.”
Trump spoke in the Rose Garden at the White House on Oct. 1 about the new trade agreement between the countries. The USMCA deal still will need to be approved by Congress.
Trump and ‘Foreign-Made Cars’
In his press conference, the president said the new deal with Mexico and Canada will close “terrible loopholes” caused by NAFTA. But the example he offered — of Mexico and Canada assembling cars with foreign parts and sending them to the U.S. with no tax — is misleading.
Trump, Oct. 1: Under the current new deal — and if you look at the current NAFTA deal, the new deal is taking care of all of these problems because NAFTA — foreign companies have been allowed to manufacture many of their parts overseas, ship them to Mexico and Canada for assembly, and send their foreign-made cars into the United States with no tax.
So we let all our people go. We fire everybody. They make cars. They make products. They make everything in another country. They send them into the United States — no tax. And the cost is very little difference. Sometimes it’s more — for those people that like to talk about cost.
With this agreement, we are closing all of these terrible loopholes. They’re closed. They’re gone. They were a disaster.
Trump distorts the facts.
Under NAFTA, cars sold in the U.S. must contain at least 62.5 percent of auto parts from North America in order to qualify for tax-free status. Cars that don’t meet the threshold for the so-called “Regional Value Content,” or RVC, must pay a 2.5 percent tariff. (The tariff for pickup trucks and cargo vehicles that do not meet the threshold is 25 percent.)
Virtually all cars assembled in Mexico and Canada met that threshold in 2017, according to an April report by the Center for Automotive Research in Ann Arbor, Michigan.
“In 2017, nearly all vehicles imported from Canada (98.4 percent) and Mexico (99.8 percent) were traded using the NAFTA preference — which means they meet the current 62.5 percent parts RVC,” the report said.
The threshold will increase from 62.5 percent to 75 percent under the new agreement.
In announcing the new deal, the president boasted that it required “at least 75 percent of every automobile to be made in North America in order to qualify for the privilege of free access to our markets.” But he did not mention the existing threshold is 62.5 percent. That fact was also omitted from the fact sheets about the new trade agreement released by the White House and the Office of the U.S. Trade Representative.
“There is no loophole. They either meet the 62.5 (percent) or not,” said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research.
Dziczek said that the majority of cars coming from Mexico and Canada will meet the new 75 percent auto parts threshold and continue to pay no tax.
Mexico has said that close to 70 percent of its car exports will meet the new requirement. As for Canada, Dziczek said, “I’m guessing most [vehicles] are close or already conforming. They use a lot of U.S. content. A lot use U.S. engines and U.S. transmissions — that’s a huge portion of the value of the vehicle.” She said the content is based on the value of the parts.
The countries agreed to raise the threshold with the hope that it will result in more car parts being manufactured in the U.S., Canada and Mexico, but the CAR report says raising the threshold to 75 percent could have the opposite effect.
The CAR report notes that the existing 62.5 percent threshold is already “the highest RVC of any current U.S. trade agreement.” Automakers may prefer to pay the 2.5 percent tariff, rather than increase the percentage of North American auto parts, depending on what is more cost effective, the report said.
The report estimates that the new rules will add between $470 and $2,200 to the cost of cars that do not meet the new requirements.
CAR analyzed the U.S. proposals to change NAFTA as of April, when the report was released. At the time, the U.S. proposed raising the North American auto content from 62.5 percent to 75 percent and requiring at least 30 percent of the content of a vehicle to originate in a country where the labor earns more than $16 per hour. The new agreement is similar: It contains the 75 percent threshold and requires that 40 percent to 45 percent of the auto content must be made by workers earning at least $16 per hour.
Dziczek said the increased cost of cars because of the tariffs will probably be higher than stated in the report, because the final wage rule is more stringent than the original U.S. proposal.
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