Having threatened to renegotiate NAFTA at best and abolish it at worst, the US President-elect’s dislike for the free trade agreement that has kept the North American automotive industry globally competitive for 23 years will damage the US manufacturing and consumer market.
Specifically, withdrawing from the agreement or taxing cars imported from Mexico would be detrimental to “vehicle makers’ ability to deliver an affordable mix of vehicles consumers demand, to the ability to support supply chain requirements with globally cost-competitive raw materials as well as products that might not have any sources within the United States,” according to the NAFTA Briefing released by the Center for Automotive Research (CAR) in the US.
The US could Lose 31,000 Jobs in the Automotive and Auto Parts Sector
The study also debunks the theory promoted by Trump Mexican workers are responsible for jobs dissipating in the US, stating that 87 percent of job loss in the US is down to technology advances. As Fortune paraphrased Democratic presidential candidate Hillary Clinton, “It’s the robots, stupid.”
It’s no wonder US workers are complaining about lacking employment opportunities, especially since employment status is critical for well-being. But neither China nor Mexico, low-cost labor markets, are at fault. Even since China joined the World Trade Organization in 2001, US manufacturing has in fact increased. This is not directly linked with the 5 million factory jobs lost in the US since 2000, as Ball State University reported that 88 percent of these jobs went to robots in 2013, substantiating CAR’s numbers.
This increased automation is good for industry: today GM employs just one third of the 600,000 workers it had in the 1970s but continues to produce more vehicles than ever. Boston Consulting Group (BCG) says this trend will continue, and we will see investment in industrial robots growing 10 percent every year throughout the 25 biggest export nations up to 2025, simply because owning and operating a robot is cheaper.
BMW has been told by the President-elect that it must build its new plant in the US instead of Mexico. Failing to comply Trump’s 35 percent tariff on cars exported from Mexico has held over BMW, as he has over the heads of all OEMs.
The German Carmaker is not Fazed
Peter Schwarzenbauer, Member of the Director’s Board of BMW announced that the factory will remain in Mexico and produce the Series 3 as planned.
Supporting BMW’s decision to hold its ground Matthias Wissmann, President of the auto industry association VDA said: “We take the comments seriously but it remains to be seen if and how the announcements will be implemented by the US administration.” He expects US Congress to show “substantial resistance” against Trump’s proposals, which would be wise since they will cost the US even more jobs than it has already sacrificed to automation.
Trump singled out BMW but every German OEM already has or is constructing plants in Mexico. The country is seen as the door to the North as much as the South American markets and offers production savings of US$4000 per unit produced compared to manufacturing in the US.
On behalf of the US, Harold Sirkin, a Senior Partner at (BCG) said: “When I hear that (foreigners) are taking all our jobs — the answer is, they’re not,”
Resources: CAR Group, Fortune, The Big Story, Bloomberg, image credit: Expansión.