Nafta is Dead. Long Live Nafta

The biggest problem with Nafta that hurt US workers, Mexican workers, and the Mexican economy, though it hugely benefited profit margins of global automakers and Corporate America, remains unaddressed: Wage repression in Mexico, including via “protection contracts” as condition for building a plant.

The deal was announced with fanfare at a press conference in the Oval Office this morning: The US and Mexico had reached a new deal that would govern their totally out-of-whack trade relationship.

“A big deal looking good with Mexico,” President Trump tweeted.

Mexico’s outgoing President Enrique Pena Nieto was wired in by conference call. This deal is between the US and Mexico. Canada, one of the few countries in the world with which the US has a balanced trade relationship in goods and services, was watching from the sidelines.

The name “Nafta” would be tossed. “We’re going to call it the United States/Mexico Trade Agreement,” Trump said. Nafta “has a bad connotation because the United States was hurt very badly by Nafta for many years.”

The negotiations between the US and Mexico had focused on the auto industry. This is important. US automakers and component makers – along with other global automakers and component makers, including Canada’s Magna International, the largest auto component maker in North America – set up huge manufacturing operations in Mexico to benefit from its cheap labor.

Thanks to the lure of cheap labor for Corporate America, the US had a goods trade deficit of $71 billion with Mexico in 2017, the second worst, behind China. A trade deficit is a negative for GDP.

The idea behind renegotiating Nafta had been to bring some of this manufacturing activity back to the US – against blistering lobbying by the automakers and component makers, often carried out in the media. They didn’t want to lose unfettered access to this cheap labor.

There will be some new rules, including requiring more US-content in some vehicles and components. If new plants are built in Mexico, they might have lower limits on US content for the first five years, same as under the old deal. We don’t know the details yet, and some details still need to be ironed out, but what happens when a company doesn’t comply with the rules? This is key. Bloomberg reported that the two countries “are said to have agreed” that the penalty for not complying with these rules will be a 2.5% tariff, same as under the old Nafta deal.

A punitive tariff of 2.5% would be so minuscule, compared to the huge wage differential, that this is a no-brainer. More on that in a moment.

We also don’t know about the fate of a “sunset clause” that would allow the new deal to expire automatically after five years. US automakers and component makers, and Mexico had all opposed this provision, and given the pressure from the US auto industry, a watered-down compromise will likely be found.

But here is what has been silenced to death: One of the major selling points of the original Nafta was that it would create well-paid jobs in Mexico, raise wages in Mexico due to all the rules about wages in the deal, and bring up the Mexican consumer base so that they could buy US products. And these higher wages in Mexico would relieve downward pressure on US wages.

But this is precisely what hasn’t happened.

In June, when GM announced that it would build its car-based crossover Chevrolet Blazer in Mexico, starting later this year, UAW vice president Terry Dittes put it this way:

“GM employs over 15,000 production workers in Mexico, pays the workers less than $3 per hour, and exports over 80 percent of the vehicles to the US to sell here. This is all happening while UAW-GM workers here in the US are laid off and unemployed.”

By comparison, in the US, assembly-line workers at automakers earn on average $29.62 per hour (June) and workers at component makers earn $20.81 per hour.

So how is it possible that, after all these years, wages in Mexico are still so low?

An AP report last year shed some light on a scheme of wage repression in auto manufacturing that makes this possible. The report cited an Audi plant in the state of Puebla, inaugurated in 2016, where workers made on average $2.25 an hour.

Government records cited by the AP show that in January 2014, when the factory was being discussed with local officials, Volkswagen, which owns Audi, signed a union contract that specified that wages would range from $1.40 per hour to $4 per hour.

The key may be so-called “protection” contracts, signed as a condition for building the plant. They lock in low wages in advance. Future workers have no say in it. While local officials might make out like bandits on a deal like this, workers come up short.

Automakers from the US, Germany, Japan, and Korea have invested heavily in Mexico to take advantage of these “protection contracts” that guarantee cheap labor for future years. And Nafta guarantees access to the US market.

Despite labor unrest in Mexico, manufactures have resisted significant wage increases in dollar terms. The peso continues to lose value against the dollar, so wages rise in peso terms, but don’t rise much in dollar terms. By now, wages in the auto manufacturing sector in Mexico are significantly lower than those in China and most other “cheap labor” countries – despite Mexico’s proximity to the US and the total integration of trade!

This type of organized wage repression is why, at least in part, the consumer economy in Mexico has lagged far behind. What Mexico needs is higher wages (in dollar terms). They’d perform miracles for Mexico’s consumer spending and the overall economy. And they would allow Mexicans to buy more imports from the US.

But rising wages in Mexico would squeeze profit margins of those automakers, and so everything must be done to repress them.

There appears to be nothing in this Nafta-is-dead deal that addresses this issue, and Trump has never said a word about it, and automakers will continue to use “protection contracts” to keep the scheme going. Corporate America’s profit margins are simply sacred. And no trade deal is allowed to impinge on them. 
 

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  70 comments for “Nafta is Dead. Long Live Nafta

  1. chillbro
    Aug 27, 2018 at 1:56 pm

    I voted for Trump but apparently even the master of a deal can’t cut a decent bargain for his voter base. Sad indeed.

    • Gershon
      Aug 27, 2018 at 10:56 pm

      “Meet the new boss, same as the old boss.” — The Who

  2. Prairies
    Aug 27, 2018 at 1:57 pm

    I wouldn’t be surprised if the only change to come from this is the title of the agreement. Just more of the same, poor people stay poor and rich corporations stay rich.

    • Gershon
      Aug 27, 2018 at 10:58 pm

      This “new” agreement is still a screw-job of both American and Mexican workers. And yes, we need to be concerned about Mexican workers who are getting screwed over by the elites just like we are.

      • Chowder
        Aug 28, 2018 at 4:25 pm

        The agreement with Mexico requires 75% of a car’s value to be manufactured in North America, up from Nafta’s current level of 62.5%, Reuters reported. It would also require 40% to 45% of the car to be made by workers earning at least $16 per hour.

        …Not sure how well that will affect wages in Mexico, but hopefully it will help Mexican workers while adding some balance?

        • Aug 28, 2018 at 7:04 pm

          What’s the penalty for not complying with this rule? A tariff of 2.5%, instead of zero tariff, same as before. Those rules weren’t complied with before because 2.5% on some items is nothing compared to the huge cost savings due to the wage disparity (over $1 billion in savings a year for GM).

  3. Escierto
    Aug 27, 2018 at 2:01 pm

    Now Trump can tell his minions that he got rid of NAFTA. OF course what he won’t tell them is the new deal is basically the same as the old deal.

    • Petunia
      Aug 27, 2018 at 3:29 pm

      While this deal seems to be concentrated on the auto industry, if NAFTA is really dead, then there will be or should be tariffs on every thing else coming from Mexico. That’s not the same as NAFTA where everything came over the boarder untaxed.

      • jb
        Aug 27, 2018 at 9:45 pm

        good point , this may be a nothing burger . NAFTA was signed into law by congress , much of its’ pieces need congressional approval to change. Maybe the lack of tariffs you mentioned cannot be undone by executive action. Trump may be pushing the envelope. It’s a shame the mexican worker cannot get some relief.

        https://foreignpolicy.com/2017/10/17/can-congress-block-trump-if-he-pulls-out-of-nafta/

      • Kraig
        Aug 28, 2018 at 2:02 am

        You could kill NAFTA as stand and avoid tariffs by requiring Mexican minimum wages to be comparable to US ones. That brings it into A Canada like postion, of course that hurts the employers.

        You could also take a clue from Germany and make sure truck drivers are paid min wage for the state they are driving in regardless of where their company is based.

        • Petunia
          Aug 28, 2018 at 8:37 am

          Raising the wages in Mexico to US or Canadian levels is not necessary because they have different price levels in their economy. Making sure the US component remains high is the clear goal.

  4. Maximus Minimus
    Aug 27, 2018 at 2:43 pm

    Audi making cars in Puebla? I wonder if it’s part of their advertising drive in the US? Maybe a big part of any agreements should be the strict country of origin labeling.

  5. Johnny W.
    Aug 27, 2018 at 3:16 pm

    Firstly, this “Deal” wasn’t for, or in the interest of, “The People” of either Country. It was for the perpetuation of the International Oligarchs & the Mexican Feudal Kleptocrat Class that rules Mexico, more or less, basically the same as it has since the Eighteenth Century.

    What will be interesting going forward from his December Inauguration is the AMLO variable.

  6. IdahoPotato
    Aug 27, 2018 at 3:27 pm

    This Mexican president is at the end of his term. What is going to compel the next guy to stay with it? The incoming President Obrador like Trump, ran on a populist platform.

    He may not be on board with this.

    • alex in san jose AKA digital Detroit
      Aug 27, 2018 at 5:44 pm

      Hell, he might even be a real populist.

  7. Harrold
    Aug 27, 2018 at 3:29 pm

    Its only takes GM about 20 hours to assemble a vehicle.

    $29.62 X 20 hours = $592.40. So out of that $50,000 GMC Sierra, only 1.2% is wages.

    Even if you include future benefits for current workers and retirees at say 100/hr, it is still only 4% of the final cost of the vehicle.

    • Aug 27, 2018 at 4:32 pm

      Harrold,

      You’ve fallen into a common, often cited trap that just uses a tiny data point that has been cherry-picked to manipulate people into thinking that cheap labor doesn’t matter. This cherry-picked number does NOT include the total manpower that it takes to build a car — just a small part of it – namely only the assembly – and even this small part of it saves GM well over $1 billion a year, as you will see below.

      Here is Toyota:

      “The process of making a car can be roughly divided into stamping, welding, painting, assembly and inspections, which takes about 17-18 hours in total. (It varies according to the number of cars made by a factory.)

      When we consider that each car is made of about 30,000 parts, each of which takes time to produce, the time it takes to build a car is quite long.”

      So forget this nonsense about “20 hours.”

      Also, building a car at a factory involves people who do not actually assemble the car, including the people who install and maintain the robots, machinery, and equipment, people who work at the plant’s parts and components operation that takes in these parts, stores them, and delivers them to the work stations as needed, the cleaning crew, management, the people working behind the scenes…

      Let’s use some basic numbers:

      GM employs “over” 15,000 workers in Mexico, times an hourly wage-difference of $26.62/hr, times 40 hours per week (assuming no overtime), times 52 weeks per year (assuming paid vacation) = $830 million in just wage savings a year in Mexico, at just its assembly plants, not counting benefits, the cost of contractors, etc. Once you throw cost savings in benefits, contractors, and other items into it, GM’s savings in costs of labor by operating in Mexico are well over $1 billion per year.

      This cost savings of well over $1 billion a year does not include the cost savings from assembling components in Mexico; it’s just for assembling these components into cars at the GM plants.

      • Lenz
        Aug 27, 2018 at 5:53 pm

        If this Nafta deal with Mexican wage suppression gives GM such a savings, how come car prices have continued to rise?

        Part of the selling point of making a cheap product is the cheap prices you can sell them to costumers.

        • Aug 27, 2018 at 6:37 pm

          Automakers (as do all companies) charge the maximum price the market will bear to obtain their sales objectives. This is a function of competition and willing/able buyers, not cost.

        • Ambrose Bierce
          Aug 28, 2018 at 11:10 am

          New Econ 101: If sales drop you have to charge more per unit to meet your revenue goals. US corporations in the Fascist business model (Jim Willie) function like public utilities (lots of gov support) and if your power company had only one customer, how much would they have to charge?

      • QQQBall
        Aug 28, 2018 at 8:33 am

        Don’t forget Legacy Costs. years ago I read a quote that there were $1,500 in Legacy Costs in a GM vehicle.

        • Paul
          Aug 28, 2018 at 2:57 pm

          That number probably varies widely from one company to another.
          I have read that when GM was restructured, retirees were costing them more than the employees they had at that time.

  8. Bobby
    Aug 27, 2018 at 3:42 pm

    When promises are built-in to trade agreements, “Mexico promises to import more Agriculture” or “China promises to import more US oil” it seems like it’s doomed for failure. Reminds me of the movie “the Good, the Bad and the Ugly” when everyone has a gun pointing at each other.

  9. safe as milk
    Aug 27, 2018 at 3:43 pm

    according to the ny times,”Under the changes agreed to by Mexico and the United States, car companies would be required to manufacture at least 75 percent of an automobile’s value in North America under the new rules, up from 62.5 percent previously, in order to qualify for Nafta’s zero tariffs. They will also be required to use more local steel, aluminum and auto parts, and have 40 percent to 45 percent of the car made by workers earning at least $16 an hour, a boon to both the United States and Canada and a win for labor unions, which have been among Nafta’s biggest critics.”

    • Aug 27, 2018 at 4:37 pm

      Yeah, as I said the penalty for not complying with these rules = 2.5% tariff as before.

      (If the penalty for breaking the rules is only a 2.5% tariff on some things, violating those rules costs a lot less than complying with those rules, even if companies actually pay the penalty tariffs. That was the problem before too. A 2.5% penalty on some items when you have this huge wage disparity is just a joke).

      • Eastwind
        Aug 27, 2018 at 5:52 pm

        If the tariff for violating the rules stays at 2.5%, that would be pretty pointless. I thought I read somewhere that it would be 20% (or maybe I saw 25%, I can’t find it again).

        We need more details on the agreement, and they’re slow in coming.

        For instance, what about the rules for selling used cars across the border? Mexico simply prohibits most models from being sold US->Mexico, the US requires costly modifications to emissions that make it uneconomical to trade vehicles Mexico->US. Mexico should harmonize their new car emissions requirements with the US to save their own environment, and allow importation of used US cars.

        Another one I’d like to learn about is the restrictions on truckers driving loads between countries. Under NAFTA, as I understand it, US truckers have to stop at the border zone, while Mexican big rigs can haul from Mexican plants anywhere in Mexico to anywhere in the US.

    • Gadi
      Aug 28, 2018 at 4:45 pm

      according to Bloomberg, the 75% applies to the entire car, not just a specific list of parts as it does tpday. Also, R&D and headquarter costs are now included.

  10. timbers
    Aug 27, 2018 at 4:50 pm

    The solution is obvious, isn’t it? We need a “free” trade deal that locks in U.S. wages at less then $3/hr, too. Or prefably lower. Because “markets.” When has that ever not been the goal?

    • Paul
      Aug 28, 2018 at 6:51 am

      The global median working wage is about $5 a DAY. That is what a DF’s pair of hands are worth, unaided by massive amounts of capital and technology.

      At the end of WWII, the US was in a unique set of circumstances, the only industrialized country in the world that had not been bombed into the storage and seen 2 generations of men disappear.

      There had been full employment for 4 years and not much available to buy, so everybody had money in the bank. Whatever they did’t buy could be exported to rebuild the world.

      There was unprecedented wealth creation that within a generation was mis-perceived as being “normal”.

      It wasn’t, particularly when the next generation thought wealth consumption was more important that wealth creation.

      American wages and wealth consumption are unsustainable as the monopoly on capital and technology dissipates.

      • Aug 28, 2018 at 8:58 am

        Paul,

        You happily took the “unsustainable” money you made but now think that others should not make that kind of money? Isn’t that a bit hypocritical?

        If people don’t make money, what are they’re going to spend? Should we all go back to Neolithic times? Or go where Bangladesh is now?

        Let me tell you a secret: in a well-functioning economy, work is well-compensated and allows people to live comfortably and spend most of what they make to keep the economy going and save part of what the make as a form of capital that is used to grow the economy. An economy is a flow. Once you curtail that flow at one end (money you pay workers), the whole flow slows down, and it goes into a downward spiral.

        The idea is to bring Mexican wages up to US levels over time (decades), and not the other way around.

        • Chris
          Aug 28, 2018 at 9:15 am

          Robots will replace most jobs in 10 years. Wages will not matter in a few years. Standard of living has gone down because the population has more than doubled to 325 million from just 150 million in 1950. With robots and AI, there is going to be fewer jobs and there is no need for so many people.

        • Bob H
          Aug 28, 2018 at 10:53 am

          Wolf..

          Forcing other countries to ‘raise’ their prices is simply an admission that we’re taxed and inflated to death.

          I paid $4250 CDN for a brand new 1969 Z-28 Camero. While not doubt wages have gone up, I’ll bet taxes/bureaucracy/inflation have something to do with the ‘price increase’.

          Smaller governments, with less bureaucracy would go a long ways to reducing our living costs.

          In Mexico I can buy a bottle of Canadian whiskey for much less than 1/2 of what it costs in Canada. Go figure!

        • MD
          Aug 28, 2018 at 11:47 am

          Paul has clearly totally swallowed the neoliberal/globalist pill:

          “you have no right to demand a level of remuneration which provides you with a comfortable living for you and your family, because the wealth generated from your labor is the property of the [wealthy] corporate stockholder, not you, and we can always find someone else to do the job you’re doing for less”.

          No wonder with people like him rolling over and giving up that the wealth gap has increased to the levels it has, and the middle class has shrunk away.

        • GolferDave
          Aug 29, 2018 at 12:19 am

          The real objective is to lower US wages (and benefits) to harmonize with the cheap labor of Mexico and China..thats what monopoly capitalism is all about…The ascendance of transnational corporate profits.

      • timbers
        Aug 28, 2018 at 9:51 am

        Paul you said:

        “At the end of WWII, the US was in a unique set of circumstances…”

        I agree there were some uniqueness about the U.S. at that point in time, but I disagree on what THE important uniqueness. To me it was:

        We had govt policy place that benefited the working people instead of policies that now benefit the rich, corporations, monopolies, ologopies.

        This was largely due to FDR and fear in Washington of Communism/Socialism coming out of the Depression and WW’s. The thinking was the elites had to give up something to forestall the masses doing what they were doing in Europe. It’s been said the Socialist Party in was the most influential political party of the time. Also, to take care of worker bees humming the U.S. war machine.

  11. Paulo
    Aug 27, 2018 at 5:05 pm

    Thanks for a great article, Wolf.

    My opinion is that a US auto worker wage of $29.00/hr is at least 1/3 too low. How many WS readers expect to support a family on $58,000/year? Talk about feudalism. Monotony and shift work? Horrible life. I worked in a sawmill at age 19 and have never forgotten how soul destroying factory work is. Factory workers need to be well compensated, and not exploited. The corporations are getting away with murder with what they do in Mexico.

    Mexico doesn’t need a trade agreement, it needs a revolution. Yesterday.

    Anyway, here is a Canadian perspective on NAFTA. Concerned? Yes. Confused? Yes. Angry? Most assuredly. Next year is an election year for us. There will never be a signed NAFTA agreement with US that involves listening to DJT crow and preen. It has to be a win win win for all three parties. There is now simply too much hate on this side of the border and any Govt that did agree to poor terms would be signing up for defeat. Forever. Anti US feelings are visceral north of 49 since the imposition of Tariffs.

    Thankfully, Chrystia Freeland is the smartest person in the trade negotiating room and won’t let this happen. Meanwhile, Trans Mountain pipeline construction is proceeding and a completion date is soon to be announced (maybe end of 2019?). This will pull 900,000 bbl/day out of the US market to be sold and/or replaced at World prices. If the Conservatives are elected in Canada look to see Energy East proceeding. That project would see an additional 1.1 million barrels per day being exported elsewhere. That will be a reduction by 2/3 of current levels exported to the US by Canada.

    • max
      Aug 27, 2018 at 9:52 pm

      “My opinion is that a US auto worker wage of $29.00/hr is at least 1/3 too low. How many WS readers expect to support a family on $58,000/year?”

      problem is your big government, which in 1900 was ~5% of GDP and now is closer to 25% of GDP

      “According to the Bureau of Labor Statistics, as of January 2015, there were 22 million people working in government jobs. This is around 14% of the labor force and 7% of the total population.”

      • Normansdog
        Aug 28, 2018 at 5:15 am

        WTF?

      • MD
        Aug 28, 2018 at 11:42 am

        What’s that go to do with how well autoworkers in private corporations are paid..?

        People like yourself have been brainwashed to blame absolutely everything on ‘big government’ and ‘regulation’.

        The response is totally Pavlovian; no rational thought or critical reasoning involved whatsoever.

        Remarkable.

        • Wisdom Seeker
          Aug 28, 2018 at 5:00 pm

          Actually it has a lot with how well private workers are paid. Assume a constant population. Take the government-workers from 14% to 4%, that puts 10% of the workforce back to work in more productive/useful sectors. Next, put the tax dollars that were paying those workers back into the private workers’ paychecks. Without taxes on that new income, it’s much more than a 10% pay increase for everyone. And now they’ll be able to afford to buy the stuff produced by the 10% shifted out of government.

          Do the same with the military-industrial complex. Put half those people to work making useful goods, instead of bombs that mostly create generations of overseas enemies. We haven’t finished a successful war in over 18 years, shouldn’t we be rethinking the whole idea?

          A third step would be to reinstate strong antitrust laws and restore price competition in the marketplace. With genuine price competition, corporate profits would fall (bringing down the elites that own the stocks a bit), and a much higher share of economic output would therefore go to workers. Between lower prices and higher incomes, this would be like a 20% raise for everyone too.

          With those three changes, the average standard of living could go up about 50%, with the benefits primarily going to the lower and middle classes.

          P.S. Those 3 changes are simply reverses of some major differences that have accumulated between today’s economy and that of the early postwar years. But we don’t need to go back to segregation, racism, or political hatred.

    • Gershon
      Aug 27, 2018 at 10:56 pm

      How many WS readers expect to support a family on $58,000/year? Talk about feudalism.

      ‘Muricans grab their ankles for Wall Street and the corporations each and every election by voting for the oligarchy’s captured Republicrat duopoly stooges. If you want a living wage and a decent life, start by fighting back against the corrupt and venal financial and political elites who are robbing you blind and have turned this once-great former republic into a looting colony for the banksters and globalists.

  12. njbr
    Aug 27, 2018 at 5:44 pm

    Penalty of 2.5 percent of what ?

    Most certainly not of showroom pricing–that would be $ 1250.00 for a 50K selling price.

    Of in-country labor ? Of auto part OEM wholesale price ? Of value added in-country ?

    My guess is that the rise from $3 to $16/hour would more than the “punitive” tariff with 30 to 40 hours of labor.

    Hmm…What to do, what to do…

  13. njbr
    Aug 27, 2018 at 5:50 pm

    By the way, what is the incentive for Canada to join the mellifluously named “United States/Mexico Trade Agreement”–won’t Canad want billing also…

    And cars weren’t the only issue, Shirley…

  14. illumined
    Aug 27, 2018 at 5:50 pm

    I have a question, you’re saying this new agreement doesn’t do anything about Mexican wage repression, yet based on this nearly half of auto content made in Mexico would be made with wages that average $16 an hour. How is that doing nothing about the problem?

    • Aug 27, 2018 at 6:35 pm

      illumined,

      The penalty for not complying, as I pointed out, is a 2.5% tariff on some items — same as before. These rules have always been there in slightly different form. As has the penalty tariff of 2.5%. This 2.5% levied on some items is minuscule compared to the cost savings of the wage differential — for GM alone, this cost savings is well over $1 billion a year. That’s why companies felt no need to comply with the old rules, and that’s why they feel no need to comply with the slightly tweaked rules.

  15. Just An Observer
    Aug 27, 2018 at 6:15 pm

    From working in Mexico on the construction of auto plants over the last two years, there appears to be a “Prime Directive” when it comes to local craft labor, which is: “Keep as many people employed for as long as possible (regardless of achievements, success and outcomes).

    Once this Prime Directive is understood, everything that goes South (pun intended) is simple to understand and explain. Most constuction is completed much later than scheduled. Much, much later.

    Another interesting item noted there is how most of the in-Plant labor is bussed in from distant towns. Makes for some long days adding multiple hours of transportation time to the regular shift (similar to working in LA and living in the distant suburbs).

    • govinda
      Aug 27, 2018 at 10:11 pm

      Sounds like every government, everywhere throughout all time.

  16. KFritz
    Aug 27, 2018 at 8:28 pm

    Pain sweepstakes are a dubious enterprise. BUT. The destruction of Mexico’s small holding corn production has to be nearly as bad, if not worse for the nation’s economy (not to mention social cohesion or the ability to produce its own food) as the suppression of wages.

    https://money.cnn.com/2017/02/09/news/economy/nafta-farming-mexico-us-corn-jobs/index.html
    https://www.nytimes.com/roomfordebate/2013/11/24/what-weve-learned-from-nafta/under-nafta-mexico-suffered-and-the-united-states-felt-its-pain

    These are the top ranked of a number of articles from the google search, “nafta destroyed small holding corn agriculture in mexico”

    • Cynic
      Aug 28, 2018 at 3:52 am

      Poor Mexicans – it is simply criminal.

      Much as cereal farmers were destroyed by imports in 19th and early 20th century Britain – leading, of course, to massive emigration to the Empire.

      If the US is over-run by Mexicans, it deserves it.

    • Paul
      Aug 28, 2018 at 7:39 am

      Sorry to disagree, but this is one case where the possible benefits of “free trade” should be obvious.

      Why should Mexicans till small plots of arid ground with mules to try to raise enough corn not to starve when 250 BHP 4-WD tractors can run around 1,000 acre fields guided by GPS and produce corn at a current price of about 7 cents a pound?

      The USA used to export half the corn crop to China, now it is wasted producing ethanol for gasohol.

      My experience has been that a gallon of 10% gasohol takes my vehicles less distance than 0.9 gallons of real petrol.

      It is worse than a total waste!

      The production of 25 gallons of ethanol consumes enough corn to feed a person for a year.

      Better that those people get jobs in auto plants at $3 an hour and buy their corn from the USA.

      Their hourly wage is enough to buy 40 pounds of corn, enough to feed a person for a month.

      Sadly, the USA has relatively few things that it can produce cheaply enough to export and be purchased by consumers in lower cost labor places.

      • Cynic
        Aug 28, 2018 at 12:42 pm

        Quite true. The other side of this, though, is that rural people have things called communities and ways of life, which they for some reason regret being destroyed, and pushed into urban life and dreary factory work from which they can be laid of in the blink of an eye.

        Now, if you were actually half-starved as a farmer, you’d perhaps be happy to make the jump – but if not, you’d probably prefer not to be pushed.

        • Buckaroo Banzai
          Aug 29, 2018 at 8:45 am

          Precisely. These corn farmers may have been poor, but they worked for themselves and formed a community. With the destruction of their way of life, now they are either forced into unemployment (driving them to become illegal immigrants to the US), or into becoming factory workers, forcing them to move and/or commute long distances to work for low wages in a factory they do not own, living in a “community” of estranged, poor, and exhausted people.

          This is what globalism and cultural Marxism does: destroys the dignity of human life by turning it into a commodity to be ruthlessly exploited and discarded.

  17. njbr
    Aug 27, 2018 at 9:18 pm

    After reading more about this whole “end of NAFTA” deal of Trump, it is clear it is all just for show.

    The “agreement” d’jour is not even an agreement–it’s only a possibility of an agreement. It only covers a tiny fraction of the whole NAFTA scope. The percentage of $16 workers required would be in favor of Canadian workers who are less paid than US workers, but are still far ahead of the Mexican workers in wages. And NAFTA cannot be ended with a Trumpian edict but requires a lot of legislative work in the US, as with the other countries, as well as legislative approval of any new agreements.

    • Michael T
      Aug 28, 2018 at 8:48 am

      Actually the Canadian Auto Workers Union negotiated far higher wage rates and benefits than the US counterparts. That’s why the big car makers both US and foreign have been moving car making out of Canada. For example, the Acura MDX, the high end SUV used to made in southwestern Ontario. Acura moved the production to Alabama, but sDly this resulted in a severe decline in quality in these vehicles. Fitting of the exterior body was pathetic.

  18. Chris Oliver
    Aug 27, 2018 at 9:43 pm

    Very good article.

  19. Cynic
    Aug 28, 2018 at 3:41 am

    VW have a major plant in Northern Spain, where the wages are agreeably ‘reasonable’ and unemploymentt still fairly high (although lower than in other regions) – but they have just announced that they intend to save no less than 30% (!) off their costs.

    First move is sacking all workers of 60 and over, and hiring only (cheaper) under-30’s; more moves to come later.

    They are also halting production at the plant for at least 10 days, due to the catastrophic collapse in demand for diesel cars, and a short-fall in production of the other types of engine, leaving the plant able to make cars, but without engines to put in them.

    • Buckaroo Banzai
      Aug 29, 2018 at 8:48 am

      Why has the demand for diesel cars collapsed? I thought diesel cars were still very popular in Europe?

  20. Paul
    Aug 28, 2018 at 6:36 am

    The discrepancy in wages is much worse when benefits are included. When GM restructured, the fully burdened cost of labor was about $75 an hour, and they were paying more in retirement benefits than they were to people building cars.

    Kindly note, however, that the median global working wage is about $5 a DAY, so $3 an hour is not bad.

    Also kindly note that it is really the rest of us that have had cars that have paid the ridiculous wages extorted out of the automakers under threat of strike.

    An Isuzu MuX in Thailand costs half of what a Chevy Tahoe costs in America, similar specs except the Isuzu has a turbodiesel engine that gets nearly twice the fuel economy.

    Wife has the Isuzu in Thailand, I have the Tahoe in America.

    Thai autoworkers get paid very, very well for Thailand.

    • MD
      Aug 28, 2018 at 11:36 am

      ..and yet your claim of ‘ridiculous’ wages completely falls apart when you look at the wages of German autoworkers and how phenomenally successful German cars are – which goes to show that businesses can be highly successful and profitable with unionized, well-remunerated work forces (gives people money to spend, see!)

      The ‘ridiculous’ ideas are that:

      1) people who are paid terrible wages should be glad because those around them earn slave wages
      2) global society is best served by corporations continuously seeking to pay people less by moving around the globe looking for poorer people to exploit
      3) corporations should be run for enrichment of stockholders whilst they do not pay a living wage to all employees

      Just clarified that for you!

      • Petunia
        Aug 28, 2018 at 12:51 pm

        German workers put out a quality product. In the 1970’s, when autoworkers made more than engineers, Americans abandoned American cars because the quality was terrible. It wasn’t all about price and gas because Americans were more affluent back then.

      • David Miller
        Aug 29, 2018 at 8:17 am

        If you tour the BMW plant in Munchen or the Audi factory in Ingolstadt, you will almost certainly be quite impressed. Both by the overall setup and by the people within – motivated, intelligent, and apparently happy workers.

        I’ve been to both and wonder why it is that Germany can put its own people to work like this but the US apparently can’t? Or at least not on a wide scale.

        He seemed nutty as a fruitcake at the time, but I now see in retrospect that 1993 Ross Perot was bang on correct. These trade deals have killed the middle class and enriched the overclass.

      • Buckaroo Banzai
        Aug 29, 2018 at 8:52 am

        Good comment but let me fix point (3) for you:

        3) corporations should work for the benefit of executive management, not employees or shareholders.

        The vast majority of corporate profits get creamed off by executives and managers via stock compensation schemes. GAAP was never modified to reflect how that compensation affected stockholder value. Eventually, stock prices will adjust downwards to reflect the tremendous amount of shareholder value that has been looted over the last thirty years since these schemes became the primary way that the executive/managerial elites get compensated.

  21. B Wilds
    Aug 28, 2018 at 8:41 am

    While American’s moan about the large trade deficit with Mexico it becomes more problematic when we consider what happens to that money. When you start thinking about all the money and jobs we shift into Mexico each year you would think by now Mexico would be rolling in cash. A bit of research quickly confirms that the money Mexico receives by way of trading with America quickly passes through its lands and flows to Asia.

    It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route. More on the problem with this in the article below.

    http://Follow The Money-The US Trade Deficit With Mexico Benefits China.html

  22. MF
    Aug 28, 2018 at 10:34 am

    A couple of observations:

    1. Mexico clearly didn’t gain anything. When Trump announced massive tariff increases, and included Mexico, it wasn’t to *get* tariff increases. It was simply a ploy to get everyone wailing about “protectionism” (which simply can’t exist today — it’s not possible), while twisting Mexico’s arm behind its back during negotiations so we could get a more U.S.-friendly (i.e.: corporate-friendly) agreement. We now have that. Where’s all the trade war nail-biters now? Yup. They are silent, or fretting about other insignificant details. Newsflash: it was never possible for Mexico to engage in a trade war with the U.S. They, like most countries who do business with the U.S., must do as they are told.

    2. Retention of the 2.5% tariff is simply a buy-off to the government bureaucrats that must approve the deal. Workers aren’t at the table. Bureaucrats and corporate execs are. So, each entity at the table buys off the other with an extraction from the non-represented party. Easy peasy. As long as tax receipts rise (which they will, due to continued and accelerated production in Mexico) and corporate expenses fall (which they will, due to Mexican wages + tariffs continuing to fall, relative to U.S. wages + taxes) then everyone at the table is pleased. Why is this so difficult to understand?

  23. MD
    Aug 28, 2018 at 11:29 am

    Well the whole POINT of the deal is wage suppression, because without low wages workers there’s no reason for the deal in the first place…

    Just like all neoliberal ‘trickle-down’ nonsense, the point of the deal is purely exploitation of the poor – there never was any plan to increase the standard of living of those on the poorer side of the deal. Only to increase stockholder returns (the singular aim of neoliberal economics).

    Merely exploitation, as human beings have done to each other since time immemorial when allowed to do so (the reason ‘libertarians’ live in a detached dream world that can never exist).

  24. Hugs
    Aug 28, 2018 at 12:47 pm

    Trump is pushing responsibility to US courts. NAFTA Chapter 19 is dead. Best he can do. Otherwise the next Obama would reverse him. Mexico needs to fix itself. Canada is a stalking horse for EU, Russia, and China.

  25. Rates
    Aug 28, 2018 at 5:01 pm

    Any “victory” claimed by the administration will end up looking like the Cuban missile crisis “victory” years from now i.e. there’s a separate under the table deal that will only be revealed 10 years from now or something.

    In other words, it will act like a derivative. One time gain now to win the MidTerms and another election. After that, it’s someone else’s problem.

    Made in America.

  26. MASTER OF UNIVERSE
    Aug 28, 2018 at 6:59 pm

    CANADA is fighting the wage suppression that you refer to, Wolf. This is why the admin negotiated with Mexico whilst leaving CANADA out of that lopsided negotiation. The sunset clause is also on the table for CANADA.
    My estimation is that whatshisface cannot afford to lose trade with allies.

    Great article, Wolf. It gives me hope when I see someone like you arguing for increased wages for the Mexican workers who are indeed being taken advantage of for their hard work building cars & trucks for USA consumers that are likely unaware of what these workers are being paid per hour worked on the assembly line.

    MOU

  27. JD
    Aug 29, 2018 at 8:47 am

    I have watched the charade of so called free trade run it’s course the last 25 years. The globalists have had their day in the sun and it has failed most workers here in the US but may have helped some in turd world countries who’ve also been exploited but not to the extent they are buying what they build . Therefore it is f’d up.. I’m fine with and want tariffs slapped on these things imported … I don’t care about more choices for shit I don’t need .. I want good jobs taking raw materials and building these things here … that is wealth production and has to be with decent wages … as it is now I have to work in an industry in the US that make $70 million to $200 million products for ultra high dollar ‘consumers’ aka: airlines and rich fucks as it is the only industry that pays well enough for me to live like most Americans USED to be able to live in more modest industries .., but even that stuff is getting outsourced to turd world countries … it is totally unsustainable and has to stop

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