00:00We start with the poster child for North American trade, the auto industry.
00:04Since the USMCA's predecessor, NAFTA, came into effect over 30 years ago,
00:10autos have been at the center of negotiations.
00:12The reason is simple.
00:14The industry is tightly integrated across northern and southern U.S. borders,
00:18borders like the one between Detroit, Michigan and Windsor, Ontario.
00:25This is the brand new Gordie Howe International Bridge that spans the Detroit River,
00:31separating the Motor City from Windsor.
00:33It was named for the famed hockey player who was born in Canada,
00:36but crossed the border to lead the Detroit Red Wings to four Stanley Cups.
00:41Canada paid for the bridge, but now President Trump has put its opening on hold,
00:46which in itself is unlikely to divide the two cities' economies.
00:50Those are not really separate cities.
00:52There just happens to be a borderline through them.
00:55Economist Paul Krugman won the Nobel Prize for his work on trade.
00:59Stuff does go back and forth.
01:01There's a tremendous amount of specialization, which is good for everybody.
01:04It reduces costs, increases efficiency.
01:06One of the companies benefiting from that back-and-forth trade is Linamar,
01:10a manufacturer with headquarters outside of Toronto.
01:13Jim Jarrell is its CEO.
01:15So we're 60 years old, and really, I think, when you look at Linamar,
01:20we're an advanced manufacturing and product design technology company
01:26with 37,000 people global, 87 facilities around the world.
01:32When we talk about the auto part of Linamar's business,
01:36how much of your production goes across either the Canadian-U.S. border
01:41or the U.S.-Mexican border, or, for that matter, Canada-Mexico?
01:44I would say a ton.
01:47There is so much interconnection, integration between it,
01:51and I think we've demonstrated this before.
01:53We have one part that we do for an OEM customer, two OEMs in the U.S.,
02:01and the original part that we get is a forging that comes into Mexico,
02:06which goes into the U.S. to get some further processing,
02:09comes into Canada for further processing,
02:12back to the U.S. for further processing,
02:15over to Canada where we do the sort of final assembly,
02:19and then that gets distributed back into the U.S.,
02:22as well as Mexico and Canadian auto plants.
02:26So, again, you can see this full integration of this, you know,
02:31supply chain in the automotive North American area,
02:35and one thing we say is you can't unbake the omelet, right?
02:40Manufacturing has become a regional game.
02:43Shannon O'Neill is the director of studies at the Council on Foreign Relations,
02:47author of the book The Globalization Myth, Why Regions Matter,
02:50and a Bloomberg opinion contributor.
02:53The strength, frankly, of the U.S. auto industry
02:56is really a North American auto industry.
02:58It is that because cars and car parts are produced across Mexico,
03:03Canada, and the United States,
03:04they are strong, they are competitive,
03:07and they're affordably priced.
03:09And it's that connection, those supply chains across North America,
03:13they're important for autos,
03:14they're important for all kinds of manufacturing.
03:16Given how the, I'll call it, North American auto industry has evolved,
03:21is it even possible to cut off imports and exports of automobiles
03:25and auto parts between the United States and Canada and or Mexico?
03:28There's a real question if we didn't have NAFTA,
03:30if we didn't have USMCA,
03:32would we have a North American car industry at all?
03:34If we didn't have the economies of scale,
03:37of production that have now developed over North America,
03:40could we bring back just a U.S. produced car?
03:42Sure we could, but it would be a much more expensive car.
03:45It would likely be a less innovative car in terms of the parts that go into it.
03:48And it would be really hard to compete against imports from Japan,
03:52South Korea, Europe, and other places.
03:54The U.S. MCA may have been a win-win for auto industry companies like Linamar
04:00and for our American consumers,
04:02but it hasn't necessarily addressed President Trump's underlying concerns
04:06about the balance of trade between the U.S. and either Canada or Mexico.
04:10For 2025, the U.S. trade deficit with Mexico was nearly $200 billion,
04:15with Canada about $46 billion.
04:19But O'Neill says regardless of the trade deficit,
04:22President Trump is underestimating the extent to which the U.S. needs trade both ways
04:27with both Canada and Mexico.
04:29What we see is a big influx of goods coming from Mexico to the United States.
04:34It's now the number one exporter to the United States, or U.S. importer.
04:38In part, that's replacing Chinese trade.
04:40In part, that is just the strength of North American supply chains
04:43and the back and forth of goods and services that move there.
04:47But we also need to remember that Mexico and Canada
04:49are the number one export markets for U.S. companies,
04:53for U.S. products that go out into the world.
04:55So we are very dependent on them as they are on us.
05:00Another concern often expressed by President Trump when it comes to trade,
05:04particularly in the auto industry, is the loss of jobs,
05:08something Krugman admits is real, but not really the fault of the USMCA.
05:13What do you say to people from my home state of Michigan
05:16who hear President Trump and say, you know, that's not a good idea?
05:19We're going to actually have some barriers put up
05:21so that we have more of those plants in Michigan, in Ohio,
05:25so we have better jobs?
05:27Because we have lost a lot of those jobs.
05:29We have lost a lot of jobs, but it's not mostly because of NAFTA, right?
05:33I still call it NAFTA.
05:34Sorry, it's a lot easier, given that Trump keeps changing the name.
05:37But anyway, do we have fewer manufacturing jobs in the United States?
05:42Do we have fewer auto jobs in the United States because of the USMCA?
05:47I think that's highly doubtful.
05:49The idea that somehow turning our back on the world here is going to add jobs is probably wrong.
05:59And then there's China, not part of USMCA negotiations, but always a specter in the room.
06:06China is looming over all of these negotiations.
06:08And there's real worry about China selling products into the United States
06:12using Mexico or Canada as a backdoor in, right, getting the benefits of free trade
06:16without actually being party to the negotiations and to the agreements.
06:20And so what we've seen is Mexico in particular push back against Chinese imports,
06:25which have grown dramatically over the last five years into Mexico.
06:29Some of this are cars and car parts and the like.
06:32Some are other electronics and the like.
06:33So we've seen them push back to really support North America.
06:37And as we get into the USMCA negotiations, China and this idea of transshipment,
06:42of shipping parts in through Mexico to the United States is a big part of the conversation.
06:47And one can see, and I think all parties are open to creating a real North America fortress
06:52vis-a-vis China, vis-a-vis other imports from around the world.
06:56We're in a world now where, as we've seen, interdependence can be weaponized.
07:00We used to think that that was something we did to other countries,
07:03but now we find out that other countries do it to us too.
07:05So the idea that you need to maintain capacity in your own country
07:09or in reliable allies for strategically important stuff is now very, very real.
07:16I am really reluctant to be where I am right now,
07:19but I do think that conditional tariffs on Chinese cars are probably going to be necessary.
07:25I don't think that the Europeans can allow their auto industry to be totally hollowed out.
07:31Now, there's some compromise here.
07:33You probably totally trying to shut Chinese cars out of the market is going to be a bad thing,
07:39be very costly to consumers.
07:40But on the other hand, I've been shocked not only by my own change of mind,
07:46but by some of my colleagues, people who are longtime advocates of globalization and free trade,
07:53who are saying, OK, Europe needs to do some.
07:57Really, if you like, it's national security.
08:01It's market disruption.
08:03To just allow something as big as the European auto industry to just be overrun,
08:08even if consumers would benefit for a while, it's not 20 years ago anymore.
08:14We really do need to rethink,
08:16which is a long way from saying that we should have tariffs on everything
08:21or that the Europeans should have tariffs on everything.
08:23But a much more interventionist position has become really hard to avoid.
08:29But for all the concern about trade deficits and jobs
08:32and putting sand in the gears of the North American auto industry,
08:36those most closely involved have one concern above all.
08:41I would say certainty has got to be the prize award that we've got to be chasing here.
08:47I just think that is absolutely critical to have that.
08:52The great virtue of this whole world trade system that the United States basically set up after World War II
08:59was that it provided, it wasn't just that the tariffs were low, though that's important,
09:04but even more important, things were predictable.
09:07I would almost prefer that Trump put on more tariffs on Canada and Mexico,
09:12but committed to keep them in place,
09:14than have rolling negotiations where every year you don't know what next year will be like.
09:19If you were advising President Trump how to win the negotiation with Canada and Mexico,
09:25what would you advise him?
09:26The USMCA is an easy case because this is not,
09:30there is no trade conflict here except in Trump's mind.
09:34All of the things we're talking about are not a problem for the USMCA.
09:40We shouldn't be worried about being dependent on Canadian aluminum.
09:46They've got the hydropower, they've got the cheap electricity, they're right next to us.
09:51They speak almost the same language.
09:53This is not an issue.
09:54We are not really worried about the US auto industry being hollowed out by Mexican auto production
10:00because Mexican auto production is part of an integrated system,
10:03which actually probably makes the US more competitive.
10:07So, no, the USMCA, or maybe just rename it NAFTA and go back to the original purpose,
10:14which is this is a case where it really makes sense to have a true free trade area.
10:19In fact, if I could, I would say this is a case where we should go beyond free trade
10:23to a European Union-style customs union with free movement of goods across borders,
10:29no checks at all, a common external frontier for goods.
10:33We have a real problem with China.
10:35The problem with Mexico and Canada is just a figment of the president's imagination.
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