A new report from Nikkei Asian Review says automakers aren’t eager to shift manufacturing operations from Mexico to the U.S. Instead, companies are increasing wages for non-U.S. workers or simply preparing to pay the tariffs.
The agreement between the three countries stipulates that 40% or more of passenger vehicle parts be manufactured by workers making at least $16 an hour if automakers want to trade in North America freely.
Keihin, a Honda auto parts supplier in Mexico, will raise hourly employee wages to $16 an hour. Piolax, another auto parts maker, will also raise wages to $16 at its Mexican plant to fulfill the trade agreement’s requirements.
Toyota is also unlikely to move vehicle production back to the U.S. In 2015, the Japanese automaker built a new factory in Mexico where it now produces the popular Tacoma pickup, which could face a 25% tariff in the U.S. if it fails to meet the USMC’s 40% rule. An unnamed Toyota executive told the publication the company doesn’t “want to be whipped around by a policy that we don’t know how long it will last.”
The cost of relocating is also a hurdle for companies. Nikkei Asian Review notes the coronavirus pandemic has suppressed profits, making such a move financially risky, and Toyota needs to operate its Mexican factory to recoup its investment. Some companies are looking at automation to offset the higher wages.
Ultimately, those higher production costs are passed along to the consumer, who, according to the Center of Automotive Research, could pay $470 to $2,200 more for a new car affected by the USMCA tariffs. Sales could also fall by 1.3 million vehicles annually due to the agreement and other recent U.S. trade policies.
The USMCA replaces the North American Free Trade Agreement (NAFTA) that took effect in 1994.