President Donald Trump will be taking steps to follow through with one of his most controversial campaign promises this week as the U.S. is set to begin trade talks with Canada and Mexico.
While changes to NAFTA could potentially keep U.S. companies from outsourcing American jobs, they could also be a costly blow for companies which rely on foreign labor and supplies.
Trump and his supporters take issue with the U.S. trade deficits with its foreign partners, specifically its nearly $60 billion annual trade deficit with Mexico. That deficit has prompted Trump to refer to the NAFTA agreement as a “one-sided deal from the beginning” and “the single worst deal ever approved in this country.” The North American Free Trade Agreement has been in place since 1994.
While the U.S. has a $9 billion annual trade deficit with Canada, the $60 billion deficit with Mexico alone accounts for roughly 12 percent of the country’s total annual trade deficit.
In 2016, U.S. companies imported about $295 billion in goods from Mexico. General Motors Co. (NYSE: GM), Ford Motor Co. (F) and Fiat Chrysler Automobiles (FCAU) investors know that roughly a third of those imports are automobiles and automobile parts.
U.S. trade representatives and the chief negotiator, John Melle, has outlined certain goals for the negotiations, including to “ensure the rules of origin incentivizing the sourcing of goods and materials from the United States and North America.” U.S. steel producers such as United States Steel Corp. (X) and Nucor Corp. (NUE) will be paying particular attention to the current NAFTA rule that at least 62.5 percent of the material used in vehicles produced in Mexico must come from the U.S. for the vehicle to be imported across the U.S. border tariff-free. Trump may seek to raise that percentage even higher to help give U.S. industry a leg up.
Of course, mandating the use of U.S. labor and materials could also drive…
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