The deal with the Mexicans apparently includes a provision which requires auto manufacturers to show that workers making at least $16 per hour built at least 40 percent of their vehicles in order to take advantage of the tariff waiver. Since the vast majority of Mexican auto workers make a small fraction of that, the presumed purpose of this section is to drive production facilities out of Mexico and back into the US. On its face, it is a victory for Trump and for American workers.
But is it, really? There is a serious question about how this provision is going to be enforced. That aside, put yourself in the position of a CEO of an “American” auto manufacturer (does this concept even make sense anymore?) who will have to deal with this new situation. Your company has a supply chain with both Mexican and American components. The new agreement is going to drive up your costs and make your products less competitive relative to those of “European” or “Japanese” car companies.
If you don’t simply elect to try to commit a fraud on the new system, your choices essentially are to: (a) maintain the status quo and pay the tariff, which makes your product more expensive; (b) pay the Mexican workers far more, which probably increases your costs even more; (c) move your Mexican facilities to the US, which has roughly the same result as (c); or (d) move the entire process overseas, and pay the tariff, but also take advantage of lower labor costs.
If you really want to compete on cost, you’re probably going to pick (d). Does that really make America great again, or does it mean that larger tariffs on vehicles made outside North America are next?