The United States-Mexico-Canada trade agreement, better known as new NAFTA, went into effect at the beginning of the month and it’s already having an impact. However, it’s not the one that President Trump had envisioned.
While the administration wanted the trade agreement to boost U.S. auto production, it’s benefiting Mexican workers who are set to make more money.
According to the Nikkei Asian Review, a number of Japanese companies have decided to increase wages in Mexico rather than move production to the United States. The increase in pay is due to a requirement in the agreement which says that “40% or more of parts for each passenger vehicle be manufactured by workers who are paid at least $16 (£12.80 / €14.15) per hour as a condition to make them tariff free in the region.”
Also Read: U.S. Passes Trump’s USMCA Trade Deal To Replace NAFTA With Big Impacts On Auto Industry
This requirement was designed to increase production in the United States, but a number of suppliers are simply paying their workers more. In particular, Nikkei noted Keihin is tripling the average factory wage in Mexico to $16 (£12.80 / €14.15) an hour to comply with the rule.
They’re not alone as Piolax will follow suit and use more robots to help offset the increased costs. This isn’t too surprising as companies appear to believe it’s easier to increase wages at existing plants in Mexico rather than relocate them to the United States where wages are already higher.
However, it’s unlikely that all models will be able to comply with the requirement and they’ll be slapped with a tariff as a result. The publication notes the Center for Automotive Research believes 13-24% of vehicles sold in the United States will be tariffed and this could increase prices between $470 (£376 / €416) and $2,200 (£1,761 / €1,946) if the costs are passed onto consumers.
