For a moment, it seemed the NAFTA stalemate could be broken when sources declared that the US was dropping its demands for 50 percent US content in North American auto production. Salaries, however, have become a new threat for Mexican production, along with US President Trump’s views on Latin American immigration.
After the domestic content proposal was dropped, US trade negotiators started working on an idea to integrate wages into the discussion according to a report from Reuters. The idea is determining a percentage of component production that should be completed in higher salary paying regions, as well as a wage floor for all other manufacturing activities.
Reuters’ report specifies a wage floor of US$15 per hour, which would translate to a daily wage of approximately US$120 considering an eight-hour shift. The 2014 research by Alex Covarrubias for the Friedrich Ebert Foundation in Mexico, Explosión de la Industria Auomotriz en México: De sus encadenamientos actuales a su potencial transformador, shows an average daily salary in the Mexican auto industry of MX$305.90. When considering the yearly increase in salaries related to inflation, that average would translate to approximately MX$358.84 (US$19.72). This would mean that if the US’ proposal came through, salaries in automotive manufacturing operations would have to increase by 508 percent based on the average considered.
Since skilled, low-cost labor availability has long time been regarded as one of Mexico’s greatest advantages as an investment destination, a decision of this kind could have significant repercussions on the country’s role as an automotive manufacturer. That being said, Reuters sources indicate that even though Mexico and Canada were analyzing the proposal, the wage floor would be much lower for a deal to be viable.
President Trump, however, seems keen on finding a way to bring NAFTA down. In one of his latest Twitter rants, Trump accused Mexico of failing to act to stop illegal immigration and appears to be willing to hold NAFTA hostage in order for US Congress to approve the budget to build his infamous wall.
On April 1st, President Trump tweeted: “Mexico is doing very little, if not NOTHING, at stopping people from flowing into Mexico through their Southern Border, and then into the U.S. They laugh at our dumb immigration laws. They must stop the big drug and people flows, or I will stop their cash cow, NAFTA. NEED WALL!”
Migration has been a sore topic in Trump’s government for a while, especially after Democrats in Congress fought to keep the Deferred Action for Childhood Arrivals (DACA) alive. President Trump had already used immigration before as leverage for Congress to approve his wall budget and now he seems to be using it as a way to influence both the wall discussions and NAFTA negotiations. After a convoy of migrants coming from Honduras and headed for the US entered Mexico, Trump once again threatened Mexico over NAFTA.
“The big Caravan of People from Honduras, now coming across Mexico and heading to our “Weak Laws” Border, had better be stopped before it gets there. Cash cow NAFTA is in play, as is foreign aid to Honduras and the countries that allow this to happen. Congress MUST ACT NOW!” he tweeted on Monday.
Finally, on Monday afternoon, President Trump addressed the issue one more time saying Mexico should do things his way regarding immigration or he would not sign for a renewed NAFTA agreement. “NAFTA has been fantastic for Mexico, bad for us,” he said in an official speech. “We have had our car plants move to Mexico, many of them. We make tremendous numbers, millions of cars in Mexico that years ago did not exist. They closed in Michigan, they closed in Ohio, they closed in other places. Now they are starting to move back because of what we have done with regulation and with taxes. They are starting to come back into our country in a big way.”
Negotiations are on their way to the eighth round at the moment and Mexico is yet to present a proposal related to the automotive industry and how regional content could be increased without affecting the industry. Now, the Minister of Economy and his team of negotiators will have to take these two issues into consideration as well.
The data used in this article was sourced from the New York Post, Forbes, Reuters, Twitter, the Friedrich Ebert Foundation México, Banco de México, El Universal and El Financiero.