Better to 'Fortress North America' Against China, or 'Fortress USA', Panelists Ask
The U.S. has the power to force some manufacturing out of Canada and Mexico and have it locate in the U.S., so that those cars or other products avoid tariffs, a think-tank analyst said at a Washington International Trade Association event.
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But, Brookings Institution's Joshua Meltzer said many manufacturing industries are built on supply chains that were built up over decades. In the case of cars, the U.S. is already playing catch-up in electric vehicles, where China is the largest exporter globally.
"If the U.S. wants to be competitive, spending the next 10 years forcing companies to unwind those supply chains is just going to set back the capacity to compete over time," Meltzer said at the June 13 webinar, "USMCA and North American Strategic Competitiveness."
Not only would that harm the profitability of domestic automakers, it would make vehicles more expensive, he argued. "Is that in the best interest of the United States?"
The webinar was attended by 136 U.S. government officials, among 530 attendees from around the world, WITA said.
The desire to create a "Fortress North America," to keep China from benefiting from the free trade agreement, was a topic that several panelists dwelled on.
Meltzer said that tariffs on Chinese goods have created an incentive for China to export to Canada and Mexico to circumvent those tariffs. That activity isn't necessarily violating the agreement, he said, as Chinese inputs can be included in Mexican manufactured products that still meet rules of origin; Chinese companies also are investing in Canadian and Mexican enterprises.
"There needs to be a much greater alignment across North America to address this circumvention issue," he said, as well as alignment on investment screening. He credited Mexico for paying more attention to where steel was melted and poured to keep subsidized Chinese steel out of its products.
Cesar Remis, former head of the Mexican office to implement USMCA, and now a trade consultant in Washington, reminded the audience that Canada and the U.S. both have more foreign direct investment from China than Mexico does. However, he said, he would like to see the U.S., Mexico and Canada do joint dumping investigations to address these kinds of concerns.
Meredith Lilly, a Canadian professor at Carleton University who's an expert in North American trade, notes that while there's talk that the U.S. is seeking Mexican and Canadian cooperation on China, Canadian officials question whether that's really the administration's desire.
"We are no longer sure if this is a Fortress North America approach or a Fortress USA approach," she said. She said the Canadian public is not as wary of China as the political leadership, and that Canada needs to gain something in return for keeping Chinese goods away from its consumers and businesses.
She reminded listeners that the earliest precursor to NAFTA was a free-trade agreement specifically for autos between Canada and the U.S. The imposition of 25% tariffs on Canadian vehicles that used to enter duty-free is causing job losses in Canada, she said.