Blog

 
Auto Industry Auto Parts Business Development International Business NAFTA Trade USMCA

Canadians should remain on guard when it comes to trade under Biden

John Irwin, Automotive News Canada
February 25, 2021

After four years marked by tariff threats, trade fights and vitriolic tweets from Donald Trump, the administration of President Joe Biden is expected to bring more stability to trade relations with the United States.

But those in the Canadian auto industry who hope the United States will completely eschew protectionism under the incoming administration are likely to be disappointed, said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association (APMA).

“The Biden administration is going to be tough,” said Volpe, a frequent critic of former President Donald Trump.

Biden’s victory in November’s presidential election was greeted with relief by many in the Canadian auto industry who had grown tired of the uncertainty lingering over U.S.Canada trade relations. During his term, Trump spurred renegotiations of the North American Free Trade Agreement (NAFTA) and had threatened to pull the United States out of the pact altogether. His administration imposed tariffs on Canadian aluminum and steel.

‘BUY AMERICAN’

The Biden administration will pose its own challenges for Canada. His platform calls for the U.S. government to spend US $400 billion ($518 billion) on “American products, materials and services” over the next four years.

It’s an indication that the United States under Biden will retain a “nationalist attitude toward procurement,” Volpe said. “That has some implications for fleet purchases and manufacturing in Canada.”

Biden’s plan harkens back to a similar U.S. provision during the 2008-09 financial crisis, when Ottawa was forced to go through a lengthy process to secure waivers allowing companies to take part in the U.S. government’s federal procurement contracts.

Ottawa “has to appeal to America’s self-interest… and make the case that the less competitive your procurement is, probably the more costly it might be,” said Mark Agnew, head of international policy at the Canadian Chamber of Commerce.

TRADE DEALS

On the surface, Biden’s track record on trade agreements might indicate that his administration will favour free trade. As a U.S. senator, he voted for NAFTA. As a presidential candidate, he signaled he would keep his nation in the new United States-Mexico-Canada Agreement. And Biden was vice-president in the Obama administration, which negotiated the Trans-Pacific Partnership (TPP).

In 2017 under Trump, the United States withdrew from the original TPP free-trade agreement. Eleven nations, including Canada, Mexico, Japan, Australia and Singapore, in 2018 signed a new agreement — the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) — whose provisions are largely identical to those of the original TPP, with a few exceptions. The CPTPP eliminates auto tariffs among member nations, allowing car companies and suppliers to ship qualifying vehicles and parts duty free.

Biden said little about the pact during his campaign, but in 2019 he promised he would renegotiate the trade deal before having the U.S. rejoin it. According to The Hill, a publication that covers the U.S. government, Biden said then that he would bring more labour and environmentalist voices to the negotiating table and would renegotiate the CPTPP with the goal of holding China “accountable.”

A concern among U.S. officials is what they view as China’s unfair practices, such as currency manipulation.

Biden echoed that theme when speaking with reporters in November, though he did not specifically discuss the CPTPP.

“We need to be aligned with the other democracies … so that we can set the rules of the road instead of having China and others dictate outcomes because they are the only game in town,” Biden said.

Trudeau and Biden held their first bilateral meeting Feb. 23. The two spoke via video link.

Eric Miller, a Canada-U.S. expert and president of the D.C.-based Rideau Potomac Strategy Group, said the synchronicity between the two leaders is why Trudeau needs to seize the moment.

The two governments have aligned interests on climate change, a multilateral foreign policy and on finding a new approach to China. Biden, an outspoken champion of unions, needs to be careful not to run afoul of organized labour groups with large memberships on opposite sides of the border.

“If I were Canada, I’d be pitching very strongly for a Buy American agreement — I mean, the worst they can say is no,” Miller said.

TPP RULES

Volpe said he expects “a serious inquiry into the U.S. rejoining the [CPTPP],” on the condition that labour-value content rules are revised. The labour-content requirements are at “untenable levels” that are “biased toward the Asian partners in that deal,” he said.

Volpe compared the CPTPP unfavourably to the USMCA, which raised local-content rules and requires that between 40 and 45 per cent of a vehicle’s content be built by workers making at least US $16 per hour.

“The gap between the two will likely mean that Japan and the U.S. will not come to terms on [CPTPP], but I’m not being naive about it,” Volpe said. “Biden was vice-president when they negotiated TPP, and layering that on TPP as an effective China deterrent means it could be back on the table in some way.”

The Biden administration will have “China biases” similar to those of the Trump administration, Volpe said. That would have an impact on Canadian auto suppliers sourcing subcomponents and on Canada’s goal of attracting an auto assembly plant from a China-based automaker.

Biden in December named trade lawyer Katherine Tai as his pick for U.S. Trade Representative. She played a key role in negotiating stronger labour provisions with the Trump administration in the USMCA deal.

Tai has not yet been confirmed by the U.S. Senate.

Read the full article here.