Ford’s Executive Chairman of the Board, Bill Ford recently contacted President Elect Donald Trump to inform him Ford will NOT move it’s Lincoln MKC luxury SUV plant from Louisville, Kentucky to Mexico. YEA!!! Won one.
At the same time, Audi is finishing up construction on its $1.3 billion factory in Mexico that was considered for Chattanooga Tennessee. BOOO! Lost one.
This is the day-to-day battle to retain and attract auto manufacturing jobs to the United States. The problem is two-part, the two-edged sword of trade agreements and lower cost workers in other countries.
Mexico have been masters at creating free trade agreements across the globe. They currently subscribe to forty different agreements that give Mexican exporters duty-free access to markets that contain 60% of the worlds economic output. Ten of these agreements give their exports duty free export to 45 different countries including Europe, Latin America, the Asian Pacific and the U.S. and Canada. In contrast the U.S. has free trade agreements with only 20 countries, mostly smaller such as Chili, Jordan and Panama. It costs BMW’s U.S. plant a 10% tariff to ship cars to Europe. On a luxury SUV that costs $50k that is $5,000 in export tariff.
So the easy answer would be for the U.S. to strike similar agreements across the globe, Right? It’s not that simple. The free trade agreements allow all signed nations to ship to one other without tariffs. Good Deal! Not so fast. Many of these countries have government subsidized manufacturing and offer lower labor costs. This is an incentive for U.S. manufacturers to take advantage of the cost savings in those countries, bringing the cars back to the states tariff free. That means lost jobs! U.S., Mexico and the U.S. are currently members of a free trade agreement called NAFTA. Many site that as the reason for all of the lost jobs to Mexico. Due to NAFTA, Canada has seen most of its auto manufacturing disappear.
The United States is currently negotiating a similar agreement with Asian Pacific countries called the Pacific Partnership. No tariffs on trade between the nations. Lost Jobs for the U.S.? Opponents say yes. President Elect Trump has vowed to kill the agreement when getting to office.
Every Audi Q5 SUV that is exported from Mexico will be $6,000 cheaper than it would have been if manufactured in Tennessee.
Mexico has nothing to lose and everything to gain by these free trade agreements. They are the nation of less expensive labor. Most Mexican auto workers make in a day what U.S. auto workers make in an hour. On average, Mexican auto workers make $8 per hour, including benefits. G.M. UAW auto workers make $58 per hour on average and Non UAW U.S. automakers, like the Volkswagen plant in Tennessee make $38 per hour. Even at these wages, the Mexican jobs are highly sought after with Mexico’s minimum wage of $4.50 per DAY.
As you can see it is complicated issue. Free trade agreements would work fine if their were level playing fields but they are not. The reality is that America has a great deal to lose with fair trade agreements. President Elect Trump has promised to negotiate better trade agreements with other countries to bring jobs back to America. I wish him the best. He has seen early signs of success with the Ford announcement and Mexico’s announcement that they would be willing to re-negotiate the term of NAFTA. Made in America still means something. Put our workers back to work.