Trump Trounces NAFTA Hopes, Orders "National Security" Probe Of Auto Imports

Earlier in the day President Trump tweeted that "there will be big news coming soon for our great American Autoworkers," promising that " After many decades of losing your jobs to other countries, you have waited long enough!"

This was followed up during the day by hopeful comments from various officials in the NAFTA negotiations that prompted hope for a positive resolution for an auto trade deal - which sparked aggressive buying in the Mexican Peso.

However, it seems Trump's "big news" is perhaps 'less good' for the NAFTA deal as the president has just instructed Commerce Secretary Wilbur Ross “to consider initiating a Section 232 investigation into imports of automobiles, including trucks, and automotive parts to determine their effects on America’s national security."

Statement from the President on Potential National Security Investigation into Automobile Imports

Today, I met with Secretary of Commerce Wilbur Ross to discuss the current state of our automobile industry.

I instructed Secretary Ross to consider initiating a Section 232 investigation into imports of automobiles, including trucks, and automotive parts to determine their effects on America’s national security.

Core industries such as automobiles and automotive parts are critical to our strength as a Nation.

As a reminder, this is the same provision of U.S. trade law in March when he called for tariffs on foreign-made steel and aluminum.

As The Washington Post reports, the Trump administration's move, trade analysts said, was designed to put pressure on Mexico during the final stages of negotiations for a new North American trade deal.

Negotiators for the United States, Mexico and Canada remain deadlocked over rules for granting duty-free status to vehicles under a new North American trade deal.

The talks have been underway for more than nine months and appear likely to continue into 2019, Treasury Secretary Steven Mnuchin said this week.

The threat to impose an import tax on cars was seen as an attempt to press Mexican officials to accept a U.S. demand for a higher percentage of auto content to be made in American factories.

Talks over a replacement for the 1994 North American Free Trade Agreement among the United States, Mexico and Canada have made limited progress.

Negotiators remain divided on a host of contentious U.S. proposals, including a provision that would require the deal to be formally renewed every five years.

The proposed import tax was seen as an additional pressure point in the negotiations , with Mexico and Canada already scheduled to lose their exemption from Trump's metals tariffs in little more than a week.

"This has been discussed for some time, which makes me suspect that this is being leaked to put pressure on Mexico during NAFTA and on other parties seeking steel and aluminum exemptions ," said attorney Dan Ujczo of Dickinson Wright.

Initial reaction to the idea of an import tax on cars based on national security needs was unfriendly, with one veteran trade lawyer saying it would prompt "pant-wetting laughter — followed by retaliation" among U.S. trading partners.

So far no "pant-wetting laughter" but the peso is sliding lower.

Of course, this is not just NAFTA, as The FT notes, the national security investigation would clear the way for the imposition of new tariffs on cars from Europe, Japan and South Korea and lead to a major escalation of global trade tensions. 

A unilateral move by the US to raise tariffs would also almost certainly be challenged at the World Trade Organization and lead to further retaliation by US trading partners.

“It’s flabbergasting. What makes the imports of cars a threat to the national security of the United States? It’s flagrant protectionism,” said one European official.

We suspect "who needs enemies" phrase will be heard tomorrow from America's European and Asia "allies."

So much for Mnuchin's plan.