Japanese Carmakers ‘Opt To Triple’ Mexican Pay ‘Rather Than Move' To The United States - Trump ‘Hailed The New NAFTA As A Job Generator, But Higher Prices Appear To Be In The Offing’
(WASHINGTON, D.C.) - The new North American Free Trade Agreement (NAFTA) that went into effect on July 1st was touted by Republican President Donald Trump as an engine of American job creation - but Japan’s Automakers are largely opting instead to keep their Mexican operations in place and pay their Workers more or even just pay tariffs.
The U.S.-Mexico-Canada agreement requires 40% or more of parts for each passenger vehicle to be manufactured by Workers who are paid at least $16 an 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.
However, this looks to be wishful thinking.
The ratio of U.S.-Canada parts among Mexican-assembled vehicles sold in the US was 13.5% in 2018, according to the U.S. Department of Transportation’s National Highway Traffic Safety Administration.
Trump’s theory was 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 willing to up sticks and redeploy.
One reason is the cost of moving production.
Honda-affiliated Parts Maker Keihin will raise the hourly wage of Employees at a factory in Mexico to $16 by next month - triple the average rate of a parts factory in Mexico, but still cheaper than making a move.
Because the Coronavirus Pandemic has hurt earnings, the cost of moving production will probably be too burdensome over the foreseeable future.
Auto Component Maker Piolax will raise the hourly wage at its Mexican plant to $16 within the year and is also installing robots to mitigate rising labor costs, the company said.
Toyota, which built a new plant in Mexico in 2015, is not finding it easy to change plans either.
The new plant started full-scale production of pick-up trucks in February. The trucks are popular in the U.S. and will be subject to a 25% tariff if they do not meet the content requirements of the USMCA (United States-Mexico-Canada Trade Agreement) - but if Toyota does not operate the factory, it cannot recover its investment.
“We don’t want to be whipped around by a policy that we don’t know how long it will last,” said an executive at a Japanese carmaker.
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