President-elect Donald Trump promised during the election to get tough on undocumented immigrants from Mexico by among other things building a massive wall.
He also attacked the US auto industry and Ford in particular for planning to shift vehicle production to Mexican plants.
This combination might look consistent to Trump supporters — crack down on unlawful immigration and save US jobs — but on closer inspection, it isn’t.
For starters, automaker such as Ford want to move production to Mexico because they can’t make enough money on small cars when they build them in the US. But they don’t want to stop building them for reasons that range from the need to export them to markets where they’re more popular to a desire to hedge against a gas-price spike in the future that could sour Americans on SUVs.
Meanwhile, carmakers are running their SUV and pickup truck assembly lines in the US flat-out to satisfy demand. A company like Ford would rather have workers building a new Ford Bronco SUV than a slow-selling Ford Focus.
At the same time, the evolution of Mexico’s auto industry has been impressive. According to Thompson Reuters:
Mexico appears to be a primary focus of the global auto industry as companies worldwide are eyeing to invest in the country. Actually, the wave of investments has already started. Mexico is currently the world’s seventh-largest producer of cars. Six years ago the country only was ranked in the tenth position. Mexico is the fourth-largest exporter for the automotive industry, only after Germany, Japan and South Korea. Mexico is almost reaching Japan to become the number 2 supplier of vehicles to the U.S. market.
To support this information, in 2014, Mexico manufactured four out of every 100 cars in the world. With this speed of growth in the industry and attraction of investments, Mexico could reach the 4th position in automobile producers after China, USA and Japan.
The argument from the Trump side is that all that Mexican investment will create auto-industry jobs there that could be created at home. There might be something to that, but American automakers operating plants is nothing new: Ford established its first factory there in the 1960s and built a second in the 1980s.
The automotive supply chain also crosses the border routinely. I review many cars, and with each test car comes something called a “Monroney” — that familiar window sticker. It’s required to list the origins of all the “content” that went into the car, and there’s often a lot of any given vehicle that comes from Mexico.
Solving two problems
What being overlooked here is that one of the best ways to curtail undocumented immigration from Mexico to the US is to assist Mexico in its economic advancement. And there’s also no better industry to turbocharge a country’s economic development than automobiles. Japan discovered this after World War II, as did a recovering Germany. China’s auto market has already surpassed the US to be the world’s biggest.
Auto wages in Mexico are much lower than in the US, but they will inevitably rise as the industry grows, and there enduring lesson that Henry Ford taught a century go is still valid: pay your workers enough to buy the cars they make and you will create a virtuous economic circle.
Immigrants flee Mexico to find greater economic opportunity in the US. But if greater economic opportunity emerges in Mexico thanks to good automaking jobs, then there will be far less incentive to leave.
What about the American jobs? Well, those would rely on automakers building new plants in the US, something they don’t want to do because they don’t want to be left with high-cost capacity that they will have to idle in a downturn, leading to layoffs. Autos are a cyclical industry, and the downturns always come.
The only major source of concern for auto workers in the US would be a large-scale production shift to Mexico, but that’s not going to happen, given how much capital investment the automakers have made in their US plants and how important it is for many of their customers — especially pickup-truck owners — to buy American.
In any case, carmakers have had decades to move production south of the border, and they haven’t. Numerous new plants have been built in the US by Japanese and German automakers, in the process employing thousands of Americans.
The bottom line is that while the Mexican auto industry is a great success story, it isn’t a threat to the US auto industry. But limiting its growth isn’t a smart way to address immigration issues.