USMCA, the replacement of Trump’s NAFTA took effect on July 1, 2020.
Trump praised the USMCA and Nancy Pelosi signed the agreement because they both assumed that production would move to the United States.
However, instead of moving plants to the United States, auto companies in Japan will triple the Mexican payment.
The Agreement between the United States, Mexico and Canada requires that 40% or more of the parts for each passenger vehicle be manufactured by workers who are paid at least $ 16 per hour as a condition that they are duty-free in the region. . Trump praised 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 US production would inevitably increase to meet the 40% requirement, but Japanese automakers, which had already positioned their production bases under the old NAFTA regime, are not simply willing to increase the stakes and redeploy.
The cost of moving operations is too high, so companies will increase wages in Mexico instead of moving production to the US.
- Honda Motor Keihin-affiliated parts maker will raise hourly wages for employees of a factory in Mexico to $ 16 triple the average rate of a parts factory in Mexico, but still cheaper than making a move.
- Auto parts maker Piolax will also increase the hourly wage at its Mexican plant to $ 16 within the year. The company is also installing robots to mitigate rising labor costs, said President Yukihiko Shimazu.
- Toyota Motor, which built a new plant in Mexico in 2015, also doesn’t find it easy to change plans. If Toyota does not operate the factory, it cannot recoup its investment.
The American research agency Center for Automotive Research estimates that between 13% and 24% of all cars sold in the US will be subject to tariffs. If automakers pass these costs on, prices will increase by $ 470 to $ 2,200.
The center also said car sales in the United States will fall by as much as 1.3 million units annually due to the Trump administration’s trade policy, including sanctions on China. It is estimated that 70,000 to 360,000 jobs will be lost, leading to a reduction of $ 6 billion to $ 30.4 billion in gross domestic product.
Premature animation
I wrote about USMCA, the new replacement for NAFTA several times, most recently on December 10, 2019. In apparent victory for Trump, Pelosi approves USMCA: Take a Closer Look
Dramatically worse
Almost everything the AFL-CIO supports is, by definition, bad for American consumers.
Therefore, if this agreement is really a “dramatic improvement”, I propose that it is dramatically worse.
Trump Irony
Trump brags about the USMCA. And most Trump supporters will see it that way.
But at best, the deal doesn’t represent significant change.
Importantly, the more the AFL-CIO and Pelosi are right, the worse the Trump deal is in practice.
Art of bad treatment
Previously, you thought the USMCA was a lot of noise and few nuts. I was wrong. Trump ruined things.
Rather than moving auto jobs to the U.S., the Trump deal increased car prices and reduced U.S. production.
This is what happens when you mess with global production chains and have no idea what you are doing.
Trade agreements are generally for mutual benefit. But Trump demanded provisions specifically designed (or so he believed) to give the United States a better deal.
Mexico agreed with Trump’s demands because he correctly thought otherwise.
From the start, it’s clear that Trump made things better for Mexico and worse for the US, precisely the opposite of what the USMCA was supposed to accomplish.
Mish
