Two major initiatives by the US to overhaul trade rules could have a massive impact on North America’s automotive manufacturing industry. Here’s how companies should prepare.

1. SEPTEMBER 2018
Exhibits from the BCG Article
Shifting Trade Rules
and the Future of
North America’s Auto
Industry

2. 1
Copyright©2018byTheBostonConsultingGroup,Inc.Allrightsreserved.
Exhibit 1 | In the Passenger Car Trade, the US Has a $126 Billion Deficit, Mainly
with the EU, Canada, Japan, and Mexico
-31
Japan
8
-41
-44
-44EU
-27
-40
4
1
Canada -29 15
-35
2South Korea -16
Mexico
-5Others 20
-14
25
Sources: Trade Map; BCG analysis.
Note: Data consists of import and export values of HS Code 8703.
Total US car exports, 2017: $54 billionTotal US car imports, 2017: $180 billion
Imports
Exports

3. 2
Copyright©2018byTheBostonConsultingGroup,Inc.Allrightsreserved.
Exhibit 2 | Four Possible Scenarios for the North American Automotive Industry
Source: BCG analysis.
US out
of NAFTA
New NAFTA
auto rules
Section 232 duties
Imposed
Tough rules, easy out
• OEMs and suppliers may choose to pay low
US duties rather than comply with complex
new rules
• No impact on supply chains involving the
EU, Japan, and South Korea
• Higher consumer prices for some models
Radical disruption
• Deep impact on supply chains involving
Canada, Mexico, the EU, Japan, and South
Korea
• Higher manufacturing costs passed through
to US consumers
• Loss of US export competitiveness
Fortress North America
• No impact on compliant Canadian and
Mexican imports
• Significant impact on supply chains
involving the EU, Japan, and South Korea
• Movement of some output to higher-cost
NAFTA factories to avoid duties
Muddling through
• Low US duties assessed on noncompliant
Canadian and Mexican imports
• No impact on supply chains involving the
EU, Japan, and South Korea
• Higher consumer prices for some models
Not imposed
1
2 3
4
Impact on the North American auto industry
highlow

4. 3
Copyright©2018byTheBostonConsultingGroup,Inc.Allrightsreserved.
Global
recession
Exhibit 3 | The Ability to Shift Motor Vehicle Production to the US is Limited:
Factories Are Already Operating at Nearly Full Capacity
Source: Board of Governors of the Federal Reserve System.
Note: Average of each year's quarter values; seasonally adjusted data.
79
8685
81
79
76
69
64
44
57
71
7980
8585
80
0
20
40
60
80
100
20022001 2003 2004 2013 2015 2017
+35% points
20162014201220112005 20092008 20102007
73
2006
Significant
tightening
since recession
Manufacturing capacity (%)