USMCA, Trump’s NAFTA replacement entered into force on July 1, 2020.
Trump hailed USMCA and Nancy Pelosi signed off on the deal because both assumed production would shift to the US.
However, rather than move plants to the US, Japan Auto Companies Will Triple Mexican Pay.
The US-Mexico-Canada Agreement requires 40% or more of parts for each passenger vehicle be manufactured by workers who are paid at least $16 per hour as a condition to make them tariff free in the region. Trump hailed that feature as a way to boost production in the U.S., which has a higher hourly rate than Mexico.
Trump’s theory was that U.S. production would inevitably increase to meet the 40% requirement, but Japanese automakers, which had already positioned their production bases according to the old NAFTA regime, are not simply willing to pull up stakes and redeploy.
The cost of moving operations is too great so companies will raise pay in Mexico rather than move production to the US.
- Honda Motor-affiliated parts maker Keihin will raise the hourly wage of employees at a factory in Mexico to $16 triple the average rate of a parts factory in Mexico, but still cheaper than making a move.
- Auto component maker Piolax, will also raise the hourly wage at its Mexican plant to $16 within the year. The company is also installing robots to mitigate rising labor costs, President Yukihiko Shimazu said.
- Toyota Motor, which built a new plant in Mexico in 2015, is not finding it easy to change plans either. If Toyota does not operate the factory, it cannot recover its investment.
U.S. research agency Center for Automotive Research estimates that 13% to 24% of all cars sold in the U.S. will be subject to tariffs. If automakers pass these costs on, prices will rise by $470 to $2,200.
The center also said U.S. car sales will drop by up to 1.3 million units annually due to the Trump administration’s trade policy — including sanctions on China. It estimates that 70,000 to 360,000 jobs will be lost, leading to a $6 billion to $30.4 billion reduction in gross domestic product.
Premature Cheering
I wrote about USMCA, the new Nafta replacement several times, most recently on December 10, 2019. In Apparent Victory for Trump, Pelosi Approves USMCA: Look Closer
Dramatically Worse
Nearly anything the AFL-CIO supports is, by definition, bad for US consumers.
Thus, if this deal really is a “dramatic improvement”, I propose it is dramatically worse.
Trump Irony
Trump is bragging about USMCA. And most Trump supporters will see it that way.
But at best, the deal represents no significant changes.
Importantly, the more the AFL-CIO and Pelosi are right, the worse Trump’s deal is in practice.
Art of the Bad Deal
Previously I thought USMCA was much ado about nothing. I was wrong. Trump messed things up.
Instead of moving auto jobs to the US, Trump’s deal increased the price of cars and reduced US production.
This is what happens when you mess with global production chains and you have no idea what you are doing.
Trade deals are generally win-win. But Trump demanded provisions specifically designed (or so he thought) to give the US a better deal.
Mexico went along with Trump’s demands because it correctly thought otherwise.
Right out of the gate it is clear Trump made matters better for Mexico and worse for the US, precisely the opposite of what USMCA was supposed to accomplish.
Mish
None of this really matters, now that Kanye is in the race, Biden is toast. He needed everyone of those black votes, and now he will get none…….
The average starting wage for an assembly line worker in Ontario Canada is $21.27 CDN – that’s $15.71 US.
The average cost of a home in Ontario CA is $648,100 CDN – that’s $478,787 US.
The average cost of a home in Mexico is 1,070,000 pesos – that’s $47,937 US
Kindly explain how the loss of sales of foreign made products results in the loss of American jobs. Then explain how raising wages in Mexico does not benefit the US.
Every action has a equal and opposite reaction, that is why no issue is black or white, they are only lighter or darker shades of grey. Liberals are always criminally misleading in their depiction of any issue. They seem to be completely incapable of speaking the truth, and therefore have little credibility….
The land of Dear Leader picking winners, five year planning, competence at nothing aside from stealing from, and harassing, it’s own citizenry, and waving of flags!
Got a Mexican making $1.75 hr assembling $60,000 pickups using Chinese parts,drive it across the border,mark it up 400% and sell it to Gringos at 10%APR!
Why mess with that Scam?
Problem is not those Mexicans. People productive enough to build something valuable in exchange for what they are paid, are never a burden to anyone. Instead, the problem is all the useless deadweights getting a much greater share of that $60,000 than they do.
All without assembling, nor in any other way contributing to designing, testing, assembling transporting nor marketing the truck at all. And most of those, reside a lot closer than Mexico….
Cut those pointless leeches out, and 1) Pickups would be cheaper, effectively making everyone wealthier; and 2) The Mexicans, and Americans, competent enough to actually assemble them, would all face higher demand, hence higher pay, for their services.
But, in Dystopia, the drones are, as usual, told to look the other way and bend over pliantly when the leeches rob them. And to instead throw tantrums at irrelevant nonsense which doesn’t threaten the robbers. And, again as usual, the drones are dumb enough to fall for it, too. Over and over.
This will quicken the road to bankruptcy just like the Art of the Deal did for Trump.
It is not just about the money and factory investment, its about the skills. Mexico has been producing cars for the US for a long time, and they have clustered automotive production in just a few towns. That has created a cluster of highly-skilled automotive workers. The US no longer has those kinds of skills outside of a couple of cities in Michigan. And, frankly, why would you put a factory in unionized Michigan when you can get high quality, non-union workers elsewhere?
Japanese companies make cars in Mexico because it is cheaper than making them in the USA or Japan. To stop this, either DRAMATICALLY reduce the cost of labor in the US or increase the cost of labor elsewhere. Or give the f*^k up and accept the social upheaval that goes along with mass unemployment in the US, because in global markets that is what will happen given the current workforce!
At the end of the day, this is not about $16/hr jobs, but a complete restructuring of the economic base of the country to be competitive in the global arena. Given the last 40 years, my hopes are not high.
Black Knight out with full May report today.
A few nuggets:
“Mortgage rates fell to a record low of 3.13% on June 18 according to Freddie Mac’s Primary Mortgage Market Survey (PMMS)”
“While active forbearance volumes grew throughout the month, the share of those homeowners who remitted their May payments fell from 46% in April to approximately 30% in May”
“Black Knight’s McDash Flash Payment Tracker shows that, as of June 23, only 22% of those in forbearance had remitted their June mortgage payments”
Stable genius my ass.
the WALL is to keep Amerikans INSIDE.
Seems like there should be some overjoyed Mexican automotive workers.
Imagine getting a 300% raise.
With better economic opportunities in Mexico, they better be prepared for a surge in illegal immigration from the US.
LOL: Mexico will pay?? Mexico WILL BE PAID! This is what happens when u elect an ass clown. Oh, that, and THE WALL will keep amerikans’s INSIDE!!!
Nothing matters except Dow 1 million.
Also, who says it’s a failure? Less jobs mean more profits to Corporate America.
“Also, who says it’s a failure? Less jobs mean more profits to Corporate America.”
…
Yes.
When you start to think like a sociopath / criminal it all makes sense.
By all means Main Street should bail out Wall Street no matter the costs.
All I was trying to say was this is the best crisis ever for Corporate America.
Supposedly there’s going to be an eviction tsunami soon, but I haven’t seen anyone protesting against that. We are really a country of sheeps.
“When you start to think like a sociopath / criminal it all makes sense.”
^This, and it applies to quite a lot of things you’re not understanding now.
“Trump’s theory was that U.S. production would inevitably increase to meet the 40% requirement, but Japanese automakers, which had already positioned their production bases according to the old NAFTA regime, are not simply willing to pull up stakes and redeploy.”
…
Yeah, right.
Anyone with a hint of real world awareness knows that any CEO with a pulse is deploying capital to increase stock price via dividend / buyback. A quick perusal reveals Toyota and Honda last November announced buybacks … $1.8 billion for Toyota and just shy of $ billion for Honda.
Trump should be happy. It makes the only index he cares about rise.
TB; just to give you an idea of how much this represents. Toyota’s market cap is US$ 200 billion — so $1.8 billion is 1% of the company’s capitalization. Its just a way for the Japanese to efficiently redeploy capital. This is not like the US where corporation routinely buyback 5% or 10% of their outstanding stock.
I’m no lover of Trump. However, the move was never going to be a short term fix, it was a long play — now new plants will have to make a decision on other than cheap mexican labor costs…maybe
More interesting for Americain car workers. Tesla’s stock keeps on rising. It’s more than likely that new jobs in profitable businesses (not legacy) manufacturers will be in the US…maybe
Well of course they’re going to raise salaries right away. What else are they going to do they’re not going to shut down a plant immediately and move it. What kind of logic is that?
Good rhetorical question.
I wonder why our very stable genius didn’t think of that.
Kind of ironic that you concentrate on foreign car manufacturers to make your argument.
Who knew that paying Mexicans three times as much is still cheaper than paying American union members their salary and their benefits! Trump sure didn’t think this one through. Is anyone surprised by this story?
japanese auto plants in the US are mostly NON union.
Has Trump ever thought anything thru? That would mean being informed and listening to subject matter experts in order to make sound decisions. Like that’s ever gonna happen.
Who needs jobs when he sends us checks? He’s proven repeatedly he’ll abuse brown people and liberals on our behalf. That’s good enough.
Even if Trump was successful I would hardly consider bringing back $16 an hour jobs to the good old US of A a great win for American workers.
I doubt there is anything that would or could have prevented US automakers from employing the same robots to avoid increasing labor costs. How was that not a poison pill in the first place? Asking from an under-informed viewpoint on this topic.