Analyst debate whether there might be more losers than winners in the wide-ranging global trade deal
He’s excited about the Trans-Pacific Partnership, the big trade deal that could be reached this week in Atlanta.
The chairman of Ontario-based Martinrea International has even helped promote the project on behalf of the Canadian government.
“We happen to think that access to other markets, and the ability to operate there, and maybe the ability at some point to put a parts plant there to service our customers, are good things,” he said in an interview.
Jerry Dias, president of Unifor—the union representing Canadian auto workers—holds a different view.
And the has declared war on the 12-country pact, which he fears will cost jobs in a sector that already faces major long-term challenges.
“We are rapidly becoming a branch-plant economy for the entire world. We don’t make anything anymore. We don’t sell a finished product,” he said in an interview.
He fears the deal will flood the North American market with cheaper Asian products and deepen Canada’s auto trade deficit with the rest of the world.
Possibly both of them.
It’s inevitable that there will be winners and losers in a wide-ranging deal like the one being worked out in Atlanta, says one auto-industry economist.
“It’s kind of a redistribution,” said Alan Deardorff, associate dean at the University of Michigan’s Gerald Ford School of Public Policy.
“Like anything with freeing up trade, high-cost producers will be hurt, but those who buy the inputs and could get them cheaper will benefit.”
Car companies that get cheaper inputs are going to produce more, sell more, and employ more people, he said. And the winners could include companies like Ontario’s Martinrea, a fuel- and brake-line maker that employs 14,000 people worldwide, and has 2,500 employees and pays corporate taxes in Canada.
Some jobs will go, Deardorff said, and others will come.
But one analyst wonders whether there might be more losers than winners here.
John Holmes estimates that less than a third of the jobs in Canada’s car-parts industry are at companies with a global presence like Martinrea.
He recently wrote a paper about the long-term troubles of Canadian auto manufacturing for the Automotive Policy Research Centre, a federally funded initiative that works with numerous industry actors and Canadian universities.
That paper examined how Canada’s $14.6 billion trade surplus in the auto sector in 1999 morphed into a $10.3 billion deficit by last year. Almost one-quarter of Canada’s jobs for vehicle and parts manufacturing were wiped out during the great recession, and only a small fraction have been added back since.
Will cheaper Asian parts under TPP continue that net loss of jobs?
“I strongly think yes,” said Holmes, a Queen’s University professor and auto-industry analyst.
“I can’t see the export of parts made in Canada to TPP partners other than the U.S. and Mexico growing … At the same time parts from other TPP partners or third countries are likely to displace some Canadian-made parts used in vehicle assembly in North America.”
He agreed the effects will be varied, because the auto ecosystem in Canada is complex with a diversity of interests that will fare differently under a shift in trade rules.
The Canadian government has been eager to draw attention to the winners.
It’s circulated quotes from companies like Martinrea. It shares Martinrea’s concern that to remain on the sidelines of TPP would be disastrous. Big car-makers would gravitate toward the new TPP supply chains, it says, and auto-parts suppliers would follow.
It’s also promoted the idea of harder-to-quantify gains. One Canadian official predicted a deal would knock down some non-tariff barriers used by Japan to block imports, like complex safety rules.
But the government clearly has concerns too.
Talks broke down in the last TPP round when the Japanese insisted on waiving tariffs for up to 70 per cent of car parts produced in non-TPP countries like China. In the current NAFTA agreement, the tariff waiver applies for a maximum of only 40 per cent of car parts from non-North American producers.
The Canadian and Mexican governments called that a non-starter. They’ve been pushing for a number closer to the NAFTA standard, which would limit some of the negatives.
But Deardorff questions how much, really, is at stake this week. He noted that current tariffs on Japanese imports are 2.5 per cent, meaning that to do away with them would only shave $500 off the price of a $20,000 car.
“Really these things are, intrinsically, not that big a deal.”