Finance junior Katherine Zingerman said she has not thought much about buying a car after graduation because she plans on living in a big city.
“Owning a car in that kind of environment just doesn’t seem practical,” Zingerman said. “I’d rather hold off until I’m older with a house and kids.”
But if the Trump administration renegotiates or pulls out altogether from the North American Free Trade Agreement, experts say new car prices could spike before Zingerman ever steps foot in a dealership.
As the future of NAFTA hangs in the balance, Gov. Greg Abbott urged the country’s top trade representative last week to save two provisions that most benefit the Texas economy — and affect its auto industry — from the chopping block.
Abbott said Texas annually imports $6 billion in auto parts from Mexico. Many companies own factories in Mexico where car parts are made, then sent across the border for assembly, said Rachel Wellhausen, an assistant government professor.
Wellhausen said the two provisions Abbott is advocating to maintain would keep car prices from inflating by protecting investors’ rights and ensuring the final products qualify for NAFTA benefits.
“If suddenly it becomes more risky to invest in Mexico and it becomes more expensive to invest in Mexico, fewer American companies will do business there,” Wellhausen said. “The worry in the auto industry is if you can’t make car parts in Mexico anymore, the price of cars will go up by hundreds or even thousands of dollars.”
The first provision, called the Investor-State Dispute Settlement, allows investors from the U.S., Mexico and Canada to sue the U.S., Mexican and Canadian governments if the country in which they are investing has violated protections contained in the agreement.
“The enforceability of those protections is one of the driving forces for Texas businesses and businesses across the country to invest in Mexican and Canadian infrastructure and natural resource development,” Abbott said in a letter to U.S. Trade Representative Robert Lighthizer.
Abbott said ISDS lawsuits against Mexico and Canada have resulted in settlements for American companies totaling over $100 million. Wellhausen said Abbott is particularly attached to NAFTA’s ISDS provision because many Texas corporations have investments in Mexico.
“Abbott wants to make sure Texas companies keep the right to sue Mexico if something goes wrong with their investment,” Wellhausen said.
Abbott also made a case against stricter rules of origin, a provision of NAFTA which specifies the percentage of U.S. or North American-made parts that must be included in one complete product in order for it to qualify for tariff exemptions.
“Stricter rules of origin will force Texas businesses and businesses throughout the country to produce greater numbers of goods without NAFTA benefits, which will lead to increased production costs, higher consumer prices and job loss,” Abbott said.
Wellhausen said Texas producers and consumers alike stand much to lose if Abbott’s requests go unheeded, particularly in the auto industry.
While Zingerman won’t be buying a car in the immediate future, she said the thought of shelling out more money when she does — on top of paying her student loans — is stressful.
“As college students, we’re already not in the best place to start any kind of large financial endeavors,” Zingerman said. “Buying a car is something I plan to put off for as long as possible.”