NAFTA benefits Canadian and U.S. auto sector, not just Mexico’s: report

Thanks to the North American Free Trade Agreement (NAFTA), the North American auto sector has become one of the most competitive in the world, allowing it to boost productivity and gain global market share, a new report said.

According to Scotiabank’s most recent Global Auto Report, 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.

“Although the general consensus is that the Mexican auto industry has been the clear winner since the inception of NAFTA in 1994, the agreement has also played a critical role in the outperformance of the U.S. and Canada auto sectors over the last two decades,” Scotiabank said.

“NAFTA has enabled the North American auto industry to become one of the most competitive in the world, allowing it to boost productivity and gain global market share,” the report continued. “For example, auto industry exports from NAFTA to the rest of the world have advanced by an average of 3.5% per annum over the past decade, more than half a percentage point faster than the average increase in the global auto industry’s exports. North America now accounts for roughly 22% of global auto industry exports, up from less than 19% a decade ago. While Mexico has led these export gains, the U.S. is also outpacing the growth in global export volumes. During the past decade, auto industry exports from the United States have increased by an average of 3.1% annually, and now garner 9.5% of the global total, a percentage point higher than their share a decade ago.”

The report concludes that NAFTA has enabled the U.S. auto sector to outperform other industrial sectors. In Canada, auto manufacturing output is advancing nearly four times faster than the overall growth rate of manufacturing as a whole. In the U.S., meanwhile, 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.

“Output gains for the US auto industry have accelerated to an average of nearly 2.5% annually since the introduction of NAFTA, roughly half a percentage point quicker than in the preceding two decades, and almost a full percentage point faster than overall US manufacturing growth,” Scotiabank said. “As a result, the auto sector now accounts for a record 12.4% of total US manufacturing activity, up from less than an estimated 10% share prior to the introduction of NAFTA.”

A similar trend is also evident in Canada, Scotiabank said, with auto industry output expanding nearly 4% per annum over the past five years, three percentage points faster than overall manufacturing. “Motor vehicles and parts now account for 10.5% of total Canadian manufacturing activity, the highest level in a decade and up 50% from the low set during the global economic downturn of 2008–09,” the report said. “This outperformance is being driven by auto parts, whose production has been expanding by an average in excess of 5% per annum during the present economic rebound, the best performance since the start of the millennium.”

The complete report is available at this link.