Economy, Auto
0

NAFTA Cloud Hangs Over Toyota’s US Plan

Toyota is expanding Tacoma production in Tijuana, Mexico.Toyota is expanding Tacoma production in Tijuana, Mexico.

Toyota’s surprise plan to build a US factory with Mazda meets several challenges for Japan’s biggest automaker but increases risk for a company mostly known for being careful.

On the upside, the joint venture gets Toyota 150,000 Corollas a year with a relatively modest initial investment of $800 million. And it frees up a plant under construction in central Mexico to build the capacity-constrained Tacoma pickup rather than the Corolla as first planned, Automotive News reported.

It may even buy some good will with President Donald Trump, who has criticized Toyota’s expansion in Mexico and just last week implored Japanese automakers to build more cars in the US during a trip to Asia.

On the downside, the plan depends on the survival of the North American Free Trade Agreement that Trump has called the worst US deal ever. If talks to renegotiate NAFTA fail and the agreement unravels, Toyota will have committed nearly $1 billion to Mexican-made pickups at two plants — trucks that could be subject to a 25% tariff when they come across the border into the US.

Toyota is already expanding Tacoma production in Tijuana, Mexico. By 2019, the automaker’s pickup production in Mexico will rise to 260,000 per year from 100,000 currently.

“That is a risky strategy,” said Duncan Wood, director of the Washington-based Mexico Institute, because of the US “chicken tax” that could apply to imported pickups and cargo vehicles in the absence of NAFTA. The tariff is a vestige of a trade dispute with Europe over US chicken exports in the early 1960s but has remained on the books as a protectionist cudgel.

On the other hand, cars, crossovers/SUVs and passenger vans would face only a 2.5% tariff under the rules of the World Trade Organization, which Wood considers a manageable cost for automakers in Mexico.

“I think there is a very real probability that the NAFTA talks will fail,” said Wood. “There’s a great deal of pessimism at the moment here in Washington.” The next round of trade talks begins in Mexico City on Friday, Nov. 17, though some negotiators may meet earlier.

Add new comment

Read our comment policy before posting your viewpoints

Financialtribune.com