No one is prepared for fight for Canada’s auto industry

Another car company. Another round of layoffs.

Last time, it was General Motors, with a plan to close its Oshawa, Ont., factory at the cost of 2,600 jobs.

This time, it’s Fiat Chrysler Automobiles, announcing 1,500 layoffs at its Windsor, Ont., assembly plant as it cuts back on minivan production.

In both cases, the jobs are, in effect, going to other countries.

GM is expanding its Mexican operations. Fiat Chrysler has announced plans to retool five of its Michigan plants, thereby creating 6,500 new jobs in the U.S.

It wasn’t supposed to be this way. When Canada negotiated its first auto pact with the U.S. back in 1965, the deal was supposed to protect both countries. In that agreement, auto production in each nation was linked to auto sales.

Simply put, if GM or Chrysler sold 100 autos in Canada, they had to build 100 here.

The pact worked for both countries. It allowed Canada to build up a thriving auto and auto parts industry.

It lasted until it was superseded, first by the Canada-U.S. Free Trade Agreement of 1989 and later by the North American Free Trade Agreement of 1994.

Even with free trade, the Canadian industry — initially at least — continued to thrive. But NAFTA lacked the crucial safeguards of the auto pact.

As long as cars were made somewhere in North America, they could avoid tariffs in Canada, the U.S. and Mexico.

Over time, the auto companies behaved perfectly rationally. They moved more and more of their production from Canada and the U.S. to low-wage Mexico.

And then along came Donald Trump. Polls show that most Canadians don’t like Trump. They see him as a boor and a bully.

But Trump’s critique of NAFTA — a critique shared by leftish Democrats such as Bernie Sanders as well as the U.S. and Canadian auto unions — was correct.

By encouraging auto companies to relocate to Mexico, the free trade deal did disadvantage Canadian and U.S. workers.

At Trump’s insistence, the renegotiated NAFTA agreed to last year included a requirement that tied tariff-free access to wage levels. The auto companies could still move production to Mexico. But if they did so, they would have to pay their Mexican workers more.

While the new rules didn’t eliminate the incentive to shift auto production from the U.S. and Canada to Mexico, they did weaken it.

What Trump’s intervention didn’t do, however, was protect Canadian jobs from being relocated to the U.S.

Indeed, by explicitly politicizing trade, the U.S. president made it clear that he wanted the auto companies to give American workers precedence over all others, including Canadians.

So far at least, he has not persuaded GM to rethink its November decision to shutter four U.S. plants. But he is pushing hard. In particular, he is pressing GM to reverse its decision to close the 1,700-worker Lordstown, Ohio, plant.

And he lauded Fiat Chrysler extravagantly when the company announced in February that it plans to spend $4.5 billion retooling five auto plants in Michigan.

Both Ohio and Michigan promise to be key battlegrounds in the 2020 U.S. presidential race.

In short, there is every incentive for the auto companies to favour the U.S. over Canada. Under NAFTA, autos made by Fiat Chrysler in Michigan can still enter Canada duty free, regardless of what is being produced — or in this case, not produced — in Windsor.

Under NAFTA, and faced with reduced demand for models such as sedans and minivans, Fiat Chrysler is free to decide on which plants to retool. That it chose Michigan over Windsor should come as no surprise.

The economics of the two jurisdictions are roughly similar. But in this new era of politicized free trade, Trump is fighting for Michigan.

Who is fighting for Windsor?

Thomas Walkom is a columnist for Torstar Syndication Services.

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