Canadian Manufacturing

North American auto sector success fueled by NAFTA, says Scotiabank

According to the bank's global auto report, North America's auto sector is one of the most competitive in the world, and has allowed member countries to add to production at home, create jobs and gain market share abroad


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TORONTO—The North American Free Trade Agreement has enabled the North American auto sector to become one of the most competitive in the world, allowing it to boost productivity and gain global market share.

This is according to Scotiabank’s most recent Global Auto Report.

The report finds the North American auto sector has developed one of the world’s most highly integrated supply chains, with three-quarters of U.S.-made auto parts exports sent to its NAFTA partners.

Roughly 75 per cent of the value of all auto parts used in North American-built vehicles is sourced within NAFTA, well above the 62.5 per cent threshold required for finished automobiles to move duty-free between NAFTA countries.

Scotiabank says the trade deal has allowed the NAFTA member countries to increase competitiveness, add to production at home and gain market share abroad.

North America now accounts for roughly 22 per cent of global auto exports, up from less than 19 per cent a decade ago.

“NAFTA is a win-win-win for the auto sector, as employment growth in the sector has outpaced overall job creation across North America. Any disruption of the free flow of vehicles and parts would negatively affect economic growth and labour markets,” said Carlos Gomes, senior economist and Auto Industry specialist, Scotiabank. “Efforts to modernize NAFTA should ensure that the agreement remains flexible enough for the North American auto sector to maintain its outperformance of recent years.”

The report finds NAFTA has enabled the U.S. auto sector to outperform other industrial sectors. Automotive manufacturing now accounts for a record 12.4 per cent of total U.S. manufacturing activity, up from less than an estimated 10 per cent share prior to the introduction of NAFTA.

In Canada meanwhile, auto manufacturing output is advancing nearly four times faster than the overall growth rate of manufacturing as a whole.

Scotiabank says things are looking rosy in Mexico as well, where auto production has more than tripled since the mid-1990s and exports of vehicles and parts have surged tenfold, such that Mexico now accounts for 6.5 per cent of global auto trade.

According to the report, Mexico’s NAFTA partners have also benefitted substantially from the agreement. Mexico is now the destination for more than one-third of all auto parts exports from the U.S., up from less than 5 per cent when NAFTA took effect in 1994. Auto-sector export growth to Mexico from Canada has picked up even more quickly, albeit from a smaller base.

Scotiabank asserts that overall, NAFTA has been good for auto-sector jobs in the U.S. and Canada.

During the recent expansion, U.S. employment in the sector has increased by more than five times the rate of overall manufacturing employment growth and three times the pace of total economy-wide employment gains.

Similarly, auto-sector job creation in Canada has run ahead of manufacturing employment growth and the rate of job creation in the rest of the economy.


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