New Trade Deal with Canada to Affect Car Prices

The United States and Canada signed a trade agreement Sunday evening right before the deadline expired, revamping the decades-old North American Free Trade Agreement and making good on a campaign promise by President Donald Trump to renegotiate NAFTA.

However, the new pact means that car and dairy product prices will be affected due to new manufacturing and labor agreements. As a result, unions and market watchers were less than enthused about it. They also point to the fact that there are still parts of the agreement’s text that remain unknown.

“There could be a lot of changes. We don’t know what’s in there. There are some things to like, some things not to like and a lot of unknowns,” said Celeste Drake, a trade specialist.

The agreement, known as U.S.-Mexico-Canada Agreement, or USMCA, is now to be reviewed and approved by Congress and the legislatures of Canada and Mexico before it’s implemented. For that reason, Drake noted that it was “too soon to declare victory or defeat.”

Some of the provisions in the trade deal include requirements that 40 to 45 percent of auto components be made by workers earning the equivalent of $16 per hour, although it is unclear whether $16 would be the average or the minimum earned, the trade specialist added.

Under the new agreement, 75 percent of auto parts have to be made in the U.S., Canada or Mexico to be exempt from tariffs, meaning they would likely cost more.

Edmunds analyst Ivan Drury believes the trade deal is quite the opposite of what NAFTA stood for, saying “If anyone thinks this is a good deal, then you’ve had the wool pulled over your eyes. What it spells out for consumers is that they’ll be paying more.”

He continued by saying that many of the auto parts used nowadays are made in Japan and China and the steep tariffs imposed on them do not work in favor of consumers.

“If there’s something you want, something on your vehicle that’s made in Japan or China, as we go toward electrification and auto-driving, all of these things are new parts — how do you come down on parts? You go to the cheapest place possible unless you can get it so much cheaper from the foreign place that you can eat up the cost of the tariffs,” Drury pointed out.