Under the newly formed NAFTA, North American Free Trade Act, the United States will be able to limit the number of Mexican Imports coming into the USA. A report has suggested that the Trump Administration has clauses set in place that would allow it to hit Mexican imports with up to 25% tariffs if they go over certain thresholds.
The move to strike a deal with Mexico was largely seen as a tactic to get the Canadians to acquiesce to the mounting pressure that the US team is applying to them on getting a more favourable deal for the home side. The Canadians have been very reserved in their reaction to the news on the Mexican deal and are confident that they will strike the proper balance in the accord.
What’s of interest is that the US is using national security as its leverage on increasing the tariffs and has set a temporary ceiling of two million Mexican made vehicles to enter the USA. The other car that the Trump Government is playing is the use of an archaic trade law that dates back to the 1950s whereby the auto industry was deemed to be extremely vital to the security of the nation.
There is great, and real, fear that these strong arm tactics will be used by the USA in their dealings with the Japanese and the Europeans, which could backfire on the Trump administration as the automakers from these areas have invested heavily on infrastructures that have created an enormous amount of economic benefit for many parts of the US.
One of the ‘outs’ that Mexico may have is under the WTO, the World Trade Organization, where it has the right to challenge the United States use of ‘National Security’ and may provide some respite to this potentially damaging clause. The current proposed tariff would sit at about 25% if the 2.4 million number of vehicles is breached. What’s important to note is that there were approximately 1.75 million vehicles shipped into the US from Mexico in 2017.