One cause of increased market volatility in late 2018 is likely the ongoing US-China trade dispute. Should trade tensions between the two countries persist, it could have significant implications for US trade policy and the global economy – particularly the automobile industry. I recently discussed the issue of trade and its potential effects on the investing landscape with Bob Marsh, a principal at that bipartisan Washington D.C. lobbying firm OB-C Group and Paul D. Ryan, Vice President of Trade and Competitiveness at the Association of Global Automakers.



Why has President Trump been so determined to assess tariffs on U.S. trading partners?

Bob Marsh: Trump, unlike a lot of the previous Republican candidates and presidents, has always believed that our system right now, in terms of trading, hasn’t worked. This is a fundamental belief he brought to his campaign. If you look at the states where he won that helped turned the election – Pennsylvania, Ohio, Wisconsin – those tend to be labor manufacturing states, and one of the reason many people believe he did it because of the outspokenness he had on issues of trade. So this is a core belief of his.

Paul D. Ryan: I think that’s exactly right. The other element of [Trump’s] collection of beliefs I think is a real focus on automotive trade and production in the United States. I think he comes from a place where -- automotive trade is central to the manufacturing sector and he believes that the trade agreements that have largely been negotiated over the last 30 or 40 years have coincided with a decline in manufacturing employment in the United States and he’s determined to bring that back.

Is President Trump right to assume that automotive trade deals have resulted in a decline in US manufacturing?

Paul D. Ryan: I think that objectively there are fewer people employed in the automotive industry today than there were 50 years ago. But the reality is we actually make as many vehicles in the United States today as we made 25 years ago.

Automation has played a big role and I think often automation is confused with trade and the impacts are not exactly sorted through. Trade is the big scapegoat for perceived declines in employment. But the reality is, international companies have invested a total of $82 billion in the United States over the last 25 years and established production operations in states like Tennessee, Kentucky, Georgia, Mississippi, and Alabama.

What are potential benefits of all these trade negotiations, in terms of outcome for the US economy?

Paul D. Ryan: The impact of those changes is really to be determined. I think that different companies will be differently positioned, in terms of their ability to comply with the new rules that are included in the United States–Mexico–Canada Agreement. In place of a single rule that governed the eligibility for duty benefits under the old NAFTA there are [now] six additional rules that companies have to meet in order to receive the same duty benefit. in addition to the overall regional value content number, there are three categories of auto parts, each of which has its own regional value content requirement attached to it. All of those rules will require systems to be put in place, to ensure that the companies are in compliance. There will be a cost associated with that. Until we actually have even more clarity than we currently do, about how this new NAFTA will work, it’s going to really kind of be a question mark, I think.

Bob Marsh: I think that this new approach to trade within the region will unquestionably add costs, at least in the auto sector and there are other portions of the agreement, too, that I think expand protections to digital trade and do a lot of positive things with respect to copyrights and really advancing the ball on things that have helped modernize the agreement, because after all, it is 25 years old and trying to bring the agreement into the [current] century made a lot of sense. The jury is out about how the new rules will impact US competiveness in Asia and Europe.

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