Photo: Cleveland.com
Impact on American Jobs
You may be asking yourself through all this economic jargon, how this could possibly negatively impact the American workforce. Well, allow me to explain…
Rules of origin are not ideal if we want to maximize economic efficiency. Rules of origin force companies to source their parts from counties in which they can get the lowest tariffs, instead of from where they get the best prices. The rules of NAFTA offered an additional incentive to stay within their region. Ultimately, NAFTA encouraged the Big Three automakers to expand their U.S. operations as well as encouraged Asian auto “transplants” to set up shop in America.
Negative Impact of Possible New Rules
Tougher rules-of-origin requirements would prompt many companies to pay the extra tariff in exchange for more sourcing flexibility. The Toyotas and Hondas of the world would have little reason to stay in the United States. This is because they already have cross-border supply chains with other Asian countries.
New rules-of-origin will promt Mexico and Canada to respond in a way that will please their own domestic protectionists. That means American companies — and American workers — would lose out as work in Canada and Mexico dries up.
From Trump’s own standpoint of keeping jobs in America, tougher rules-of-origin would be totally counterproductive.
