U.S. Commerce Secretary Ross has stated that a renegotiated NAFTA “will get increased percentages in the rules of origin” for the auto sector, and that manufacturers “will adapt”. That confirms our view that automotive ROOs are likely the most important lever for the administration in cutting the U.S. trade deficit. One strategy to adapt would be to withdraw manufacturing from NAFTA and rely on WTO tariffs of 2.5% to 10.0%. More likely though would be a change in sourcing for the automakers’ Mexican operations to U.S. parts purchases from those outside NAFTA. Assuming “home market” impor...