Worries That Trump Might Mess With NAFTA Said Unlikely.
“I say he hasn’t the power to abrogate treaties. If Trump tried to do that, Congress would have to agree and it wouldn’t”
Global auto manufacturers fear president-elect Donald Trump may deal a serious blow to their prospects by tearing up free trade arrangements like NAFTA, but one expert says companies can relax because even if the new President wanted to scrap treaties, he lacks the power to do it.
During his campaign for president, Donald Trump was vociferous in his criticism of treaties like NAFTA (North American Free Trade Association), which he said were unfair on the U.S. Trump inferred that much U.S. manufacturing capacity had been shut down in the U.S. and transferred to places like Mexico.
Since his election victory, auto investors have worried about the implications, but according to Terry Haines, Washington-D.C.-based Political Strategist and Head of Political Analysis at investment researcher Evercore ISI, they can relax.
Haines said the reality is that congress, not the president, approves major trade treaty policy initiatives. Addressing the question at an Evercore ISI webinar organised in London about who has the power to change trade treaties, he said worries that President Trump could do this is “way-over blown”.
“Trade treaties are negotiated by the president, and have to be confirmed by Congress in every case. When ratified, Congress has to change the law to meet new terms. I say he hasn’t the power to abrogate treaties. If Trump tried to do that, Congress would have to agree and it wouldn’t. A unilateral attempt to try and do this would be immediately rejected as usurpation of Congress’s constitutional authority,” Haines said.
This would be great news for car makers, many of which have invested huge sums building up capacity in Mexico making vehicles which they ship back to the U.S. and all around the world.
GM is the biggest manufacturer in Mexico with 838,000 vehicles a year, followed by FCA’s 632,000 and Ford with 443,000. VW and its Audi subsidiary produce there. Daimler, BMW, Hyundai and Toyota also have plans to build factories there soon.
But some experts still fear that a Trump presidency might throw a spanner into the NAFTA works.
LMC Automotive worried that negative macroeconomic consequences could weigh on U.S. and global growth, diminishing vehicle demand and reducing vehicle output because of negatives from Trump economic policy.
“Second, trade within NAFTA could be distorted if barriers, tariff or others, were to be imposed with the most negative risks evident for future Mexican vehicle production volume and sourcing decisions,” LMC Automotive said in a report.
And on the plus side.
CAFE too challenging?
“Countering the negative elements could be the tax cut and other incentives promoting investment in the U.S. for (manufacturers) and suppliers. In addition, there is the growing possibility that CAFE (corporate average fuel economy) regulations will be relaxed, which may ease concerns that the targets are too challenging to achieve,” LMC Automotive said.
LMC Automotive said the big question remained for car manufacturers whether Trump’s campaign rhetoric would be translated into formal policy decisions.
As far as NAFTA is concerned, Evercore ISI’s Haines said they can more or less breathe again. Haines said Trump could conceivably seek renegotiation of NAFTA, but attempting to modify the deal would probably takes years not months, and he would have to return to Congress anyway for it to approve any changes.
“There is a sense among many that somehow Congress will be supplicants to the President because Trump won the election, but that is very far from the truth,” he said.
Haines said Congress has been frustrated by the Obama administration’s habit of bypassing its authority and was anxious to reassert its power.