General Motors’ surprise announcement the Monday after Thanksgiving that it would eliminate 14,000 jobs and shutter five plants sent traumatic shock waves across the industrial Midwest and into Canada, putting a dark cloud over the holiday season. While these changes will affect autoworkers today, they will undoubtedly be felt by all working Americans in the months and years to come.
Less than a week after the announcement, the leaders of Mexico, Canada and the United States met in Buenos Aires for a ceremonial signing of a revised North American Free Trade Agreement (NAFTA). Despite glittering new protections for investment, the GM layoffs and plant closings underscore why NAFTA remains unpopular in industrial areas and beyond.The new NAFTA —— renamed the United States-Mexico-Canada Agreement (USMCA) in an attempt to avoid any association with the old one -— still falls short on protecting workers, jobs and wages in all three countries.
Scare tactics, like the president’s threat to terminate Nafta regardless of the consequences, won’t fix the problem and will likely only lead to the defeat of its replacement.
GM emphasized it was idling three mega assembly plants -— Hamtramck, Lordstown and Oshawa -— for market reasons. They said that the plants build slow-selling cars at a time the market is clamoring for SUVs and pickups. True enough, but GM is spending billions to build new hot-selling SUVs and pickups in expanded plants in Mexico, not the idled plants in Michigan, Ohio or Ontario. The issue isn’t shifting consumer preferences but where new production is located.
Suppressed wages in Mexico create a magnetic attraction for new investment. Workers in the U.S. are being discarded, families separated and communities torn apart in large part because production is moving where labor rights are restricted and wages are rock bottom. The problem isn’t Mexican workers or manufacturing but rather a distorted trading relationship under NAFTA. The gains bypass Mexican workers at the same time U.S. and Canadian workers are left out in the cold.
The old NAFTA accord made investing in Mexico more like investing in Ohio, but locked in a dysfunctional and corrupt labor system that insures suppressed wages. USMCA -— NAFTA for short -— is inadequate to allow workers to share in the gains.
The labor rights language is vague at best and enforcement remains anemic to non-existent. There is no assurance of dismantling a strangling structure — unique in a democracy —- of thousands of so-called protection agreements that only protect the employer and phantom labor organizations that leave workers without representation.
The flip side of suppressed wages is diminished purchasing power in Mexico and a fierce downward pressure on wages and jobs in the U.S. Each assembly plant job supports 7-9 jobs in direct suppliers and in the community from nurses to school teachers. Moreover, when the highest paid industrial workers are hammered, the impact ultimately is felt across labor markets and regions. The danger is locking in a damaging status quo for another quarter century.
Despite world class quality and productivity, autoworkers average $2.70 an hour in state-of-the-art assembly plants in Mexico, in part, because it’s nearly impossible to form an independent union. In comparison, senior UAW workers earn close to $30 an hour in the U.S. in highly competitive and profitable firms. Mexico ranks at the bottom for manufacturing wages in 37 countries surveyed by the Conference Board for 2016, except for the Philippines, and below China.
Not surprisingly, automakers have committed $25 billion of new investment to Mexican operations—$5 billion from GM alone—in the last decade.
The problem isn’t new investment, but a toxic combination of high productivity and suppressed wages that distorts trade. The U.S. ran a $66 billion trade deficit with Mexico in motor vehicles and parts through September 2018, about as much as with Japan, Germany and South Korea combined.
Overall, GM produced 700,000 SUVs and pickups in Mexico through October 2018 –- more than half its U.S. production in this highly profitable segment -— including many of its hottest selling models formerly made in the U.S. and Canada.
The Mexican context is different today. Andres Manuel Lopez Obrador (AMLO), the new reform-minded Mexican president, has said he is committed to higher wages and improved rights for Mexican workers. Nonetheless, the forces against change are formidable, from powerful, corrupt unions to corporations that benefit from suppressed wages. A key lesson from Nafta is that leverage for reform evaporates as soon as ratification takes place.
At this point, it is urgent to renegotiate NAFTA -— not simply rename it. Two things are essential: stronger enforcement for labor reform and linking ratification to demonstrated change on the ground, especially in export sectors. Both these moves could support and accelerate the new Mexican government’s own reform efforts.
Labor reforms lay the basis for healthy economies, a broadly shared prosperity, and democratic societies. To realize the benefits of trade, workers and communities, not just investors, should be able to share in the gains across the continent.