NEWS Japanese Carmakers Triple Mexican Pay Over Moving To US

Japanese Carmakers Triple Mexican Pay Over Moving To US

Japanese carmakers have opted to triple the pay for Mexican operations rather than moving to the US after a new trade agreement came into effect. 

The deal between the United States, Mexico and Canada entered into force on July 1 and replaces the 1994 North American Free Trade Agreement (NAFTA) to bind nearly half a billion consumers in a single market.

The United States-Mexico-Canada Agreement (USMCA) came into being after President Trump threatened to scrap NAFTA unless it was revamped, claiming it was sending US jobs abroad.

Trump hoped the new deal would be a driving force for American job creation, but that ideal appears to have backfired as Japanese automakers are largely opting to hold their Mexican operations in place.

The USMCA mandates that automakers manufacture 40% of their motor vehicles in facilities where assembly workers are earning at least $16 an hour, meaning the cost of manufacturing auto parts in Mexico will rise as worker wages and unionisation increase to remain in compliance with the agreement.

Trump said the clause would increase manufacturing within the US, but Honda-affiliated components maker Keihin has decided to triple the wage of workers at a manufacturing unit in Mexico to $16 because it is cheaper than the cost of transferring manufacturing to the US.

Similarly, auto part maker Piolax will elevate the hourly wage at its Mexican plant to $16, with firm president Yukihiko Shimazu announcing plans to introduce robots to mitigate rising labour prices, the reports.

Toyota constructed a new manufacturing plant in 2015 and began full-scale manufacturing of pick-up vans in February. The manufacturing will face a 25% tariff if it doesn’t meet the content material necessities of the USMCA, but the company will not be able to recuperate its funding without running operations at the unit.

One Japanese automaker executive commented:

We don’t want to be whipped around by a policy that we don’t know how long it will last.

The Center for Automotive Research, as cited by the , estimates 13% to 24% of all vehicles offered within the US will likely be subject to tariffs.

The initial version of USMCA was signed in November 2018, though Mexico ratified it in December 2019. Trump signed it into law in January, and Canada’s parliament adopted it in March, according to .

As well as changing rules on auto manufacturing and requiring higher salaries for some Mexican auto workers, the deal makes changes to e-commerce, intellectual property protections and dispute settlement for investors, as well as imposing tougher labor provisions, requiring reforms to Mexico’s laws.