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Trump makes it official: He will renegotiate NAFTA

Donald Trump's incoming administration has wasted no time setting as official policy the renegotiation of the North American Free Trade Agreement and the withdrawal from the Trans-Pacific Partnership, moves send shock waves through the automotive industry.

<p><span style="color: rgb(26, 26, 26); font-family: "Helvetica Neue", Helvetica, Arial, sans-serif;">Yamily Velazquez is seen as she works in the leather line at the Shinola Watch factory on January 4, 2017 in Detroit, Michigan. (JEFF KOWALSKY/AFP/Getty Images)</span></p>

Donald Trump's incoming administration has wasted no time setting as official policy the renegotiation of the North American Free Trade Agreement and the withdrawal from the Trans-Pacific Partnership, moves send shock waves through the automotive industry.

Until now, automakers and auto executives have been reluctant to publicly speak out about the potential consequences of renegotiating or pulling out of NAFTA because Trump's comments on the campaign trail were not official White House policy.

But on Friday, shortly after Trump was sworn in, the administration pledged to negotiate "tough and fair" trade agreements with the goal of creating more U.S. jobs as one of its top policy issues posted on Whitehouse.gov.

"This strategy starts by withdrawing from the Trans-Pacific Partnership and making certain that any new trade deals are in the interests of American workers," the statement says. "President Trump is committed to renegotiating NAFTA. If our partners refuse a renegotiation that gives American workers a fair deal, then the President will give notice of the United States’ intent to withdraw from NAFTA."

According to the statement, Trump's goal is "to put American workers and businesses first when it comes to trade" with the goal of returning millions of jobs to America — even though many analysts and economists say America's lost more manufacturing jobs to China and automation than to Mexico.

On Friday, Fiat Chrysler Automobiles, General Motors, Ford and the Auto Alliance — a lobbying organization for the industry — all either declined to comment or did not respond to e-mails seeking comment.

Automakers also have been racing in recent weeks to pull any plans they have for U.S. investments and job creation off the shelf and announce them in an effort to blunt criticism from Trump for investing in Mexico.

NAFTA has contributed to a decline in U.S. manufacturing jobs, but it has led to massive automotive industry investment in Mexico and the growth of a supplier network there.

Nearly every automaker — both foreign and domestic — has built new plants in Mexico in recent years. Mexico has surpassed Canada in annual vehicle production.

Reversing those investments to build new plants in the U.S. would take years to accomplish even in a best-case scenario. Meanwhile, a large border tax, such as the 35% tariff Trump has often talked about, would cause the price of many cars and trucks sold in the U.S. to soar and could lead to a decline in industry sales and lead a steep decline in profits for automakers.

"The new administration is suggesting a reversal in trade policy of a magnitude that hasn't been seen in decades, possibly since the 1920s," said Hoyt Bleakley, an associate professor of economics at the University of Michigan. "A sudden increase in trade costs is a recipe for a slowdown, maybe a recession, as the higher costs disrupt the supply chain."

Last week, the Center for Automotive Research in Ann Arbor issued a study that suggested scuttling NAFTA or imposing a massive border tariff could lead to U.S. job losses and could cause automakers to move to other low-cost countries for vehicle production rather than building new plants in the U.S.

The Ann Arbor-based research organization estimates that a 35% tariff on light vehicles imported from Mexico would quickly lead to a decline of 450,000 cars and trucks in the U.S. because of higher prices, hurting U.S. dealers and automakers.

It also would lead to the loss of at least 31,000 U.S. jobs because of the volume of parts that are made in the U.S. and shipped into Mexico.

"If the U.S. leaves NAFTA, companies in Mexico and Canada may seek alternate, more affordable places to purchase these goods, such as China, India, and other regions with large, international U.S. competitors," the Center for Automotive Research said.

Fiat Chrysler CEO Sergio Marchionne said last week that a 35% border tariff could force the automaker to stop producing cars in Mexico..

“It’s possible that if economic tariffs are imposed ... and are sufficiently large, it will make production of anything in Mexico uneconomical and we would have to withdraw,” Marchionne said. “It’s quite possible.”

Marchionne also added that the automotive industry needs clarity from the Trump administration on what its official trade policy and trade agreements will be.

“I think we will adjust whenever the rules get changed, if they get changed. We have no choice in this. We are not policy setters,” Marchionne said during a news conference at the North American International Auto Show in Detroit. “I am not sure exactly what the rules are. Let’s wait.”

Scott Keogh, president of Audi of America, said last week that a border tariff would not hurt the German automaker as much as some other automakers.

Audi decided five years ago to build a $1.3-billion factory in a south-central Mexico town called San Jose Chiapa to build its Q5 SUV.

"This plant ... is a global plant. It makes cars for the entire world," Keogh said. "So, there is only one place to get a Q5 and that’s (a Q5) made in Mexico. And it goes to Africa, and South America and Europe and all over the world. The car used to be made in Germany, in fact, and now it's made in Mexico."

Revealed last week at the Detroit auto show, the new Q5 is scheduled to go on sale in the U.S. by spring.

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