NAFTA exit, border tax would raise U.S. carmakers' costs: study

By Nick Carey

DETROIT (Reuters) - A U.S. exit from NAFTA or implementation of a border tax would result in many billions of dollars in additional costs for automakers and their suppliers and add hundreds of dollars to each car's production costs, according to a study released on Wednesday.

"Vitality in the motor vehicle sector hinges on a globally integrated supply chain," said Xavier Mosquet, a Detroit-based senior partner at Boston Consulting Group (BCG) and the study's lead author. "By introducing new tariffs, a border tax and a retreat from NAFTA would greatly impede the industry's relatively smooth and cost-effective flow of goods across borders in North America and around the world."

Republican U.S. President Donald Trump has threatened to exit the North American Free Trade Agreement if it is not renegotiated in favor of the United States. Talks with Mexico and Canada on revisions to the treaty, which came into effect in 1994, are due to start in mid-August.

Just this week, the Trump administration launched the first salvo in the renegotiation of the treaty, saying its top priority for the talks was shrinking the U.S. trade deficit with Canada and Mexico.

According to the BCG study, commissioned by the U.S. Motor & Equipment Manufacturers Association, leaving NAFTA would have severe implications for the sector. The study estimated U.S. tariffs in a range from 20 percent to 35 percent would add $16 billion to $27 billion annually to costs at automakers and their suppliers.

A 20 percent tariff would increase the production cost per vehicle by $650, the study found.

A border adjustment tax, which would impose a tax on imports while favoring domestic production, has been proposed in the Republican-controlled U.S. Congress, but its future looks shaky as Trump has refused to endorse it and many Republicans in the House and Senate are opposed.

The BCG study found a 15 percent border tax would result in a net tax increase of $22 billion annually for automakers and their suppliers, which would translate into an increase of $1,000 per vehicle in manufacturing costs for the top 12 carmakers selling vehicles in America.

(Reporting by Nick Carey; Editing by Frances Kerry)