Midwest Economy Blog

North American Trade and the Auto Sector

August 7, 2019
Forging a New Path for North American Trade: The Auto Sector banner. Features an icon map of North America.

Uncertainties concerning trade policies have been impacting the U.S. economy, as well as those of its neighbors and trading partners in North America. The motor vehicle industry has been especially challenged by these uncertainties, as production operations in the United States, Canada, and Mexico are closely linked.

A quarter-century ago, the North American Free Trade Agreement (NAFTA) eliminated tariffs and other restrictions in the movement of parts and assembled vehicles among the three countries. Since then, the auto industries of the United States, Canada, and Mexico have become highly integrated. The dozen carmakers with production facilities in North America, that is, the three Detroit-based companies plus the companies headquartered overseas, typically operate facilities in more than one of the three North American countries. In addition, their supply chains are highly integrated across North America, with parts and subassemblies typically crossing international borders multiple times before they reach the vehicle assembly line.

The United States–Mexico–Canada Agreement (USMCA), intended to update NAFTA, was signed November 30, 2018, by the heads of the three countries. Mexico ratified the USMCA on June 20, but the U.S. and Canada have yet to do so. And the path to ratification by the U.S. Congress is uncertain at this time. Because the USMCA would make substantial changes in the rules of origin for vehicles, the uncertainty is making investment and sourcing decisions difficult for carmakers.

Against this background, the Federal Reserve Bank of Chicago is holding a conference at its Detroit branch on September 4–5.

The program features sessions on the role of trade barriers in the context of regional integration, the experiences of industry leaders with regionally integrated supply chains, and the roles of public policy and labor in the context and constraints of regional trade. The conference will feature the following keynote speakers: Congresswoman Debbie Dingell, U.S. House of Representatives, 12th District, Michigan; Chad Bown, Reginald Jones Senior Fellow, Peterson Institute for International Economics; and Flavio Volpe, President, Automotive Parts Manufacturers’ Association.

The Detroit conference complements an upcoming North American Trade event to be hosted by the Dallas Fed on September 26–27. That conference will focus on the energy sector, immigration, supply chain linkages, and rules of origin.

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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