What a NAFTA Renegotiation Could Mean for Car Prices in the US

The Trump administration wants 85% of the parts in every car sold in North America to come from the region. Under the current NAFTA trade pact between the United States, Canada and Mexico, about 62% of the parts in a car must come from North America.

Additionally, of the parts sourced from North America, Trump’s team wants 50% to be sourced in the United States and the rest in Mexico and Canada. Mexican and Canadian leaders say this is a deal breaker.

According the Center for Automotive Research (CAR), If the U.S. were to enact a 35 percent tariff on light vehicles imported from Mexico, CAR estimates the sales impact would be 450,000 units lost in the United States. That 35 percent tariff is what the Trump Administration would apply to vehicles not meeting their content and manufacturing requirements.

According to IHS|Markit, 1.8 million vehicles produced in Mexico during 2016 were exported to the U.S. market. Moving that amount of manufacturing requires capacity that many experts say simply doesn’t exist in the States, and the alternative for automakers would be to look to spread that capacity to other countries. They would then pay the Trump-stipulated 35-percent tariff, which would add between $5,000 – $15,000 to the sticker price on new cars – and result in the cratering of the automotive business.