I have always been a bit surprised and confused by the way automotive investment moves around the world, usually chasing the lowest labor costs, and then the biggest local incentives, usually tens of millions of dollars to subsidize some new plant, and motivated finally by some fear of political retaliation to encourage local assembly, whether it's local content or even limited assembly of knock-down vehicles.
The Trump administration is trying to eliminate, it would appear, the lower labor costs of doing business in Mexico. There's no doubt this will raise the living standard of Mexican auto workers and help level the playing field.
At last, it appears, there will be little or no incentive to move production of cars or parts to Mexico just for lower labor costs. This has been an elusive goal for the leaders in Canada and the U.S. who pushed for better labor protections in Mexico under NAFTA decades ago.
There are a lot of naysayers who are yelling about raising the cost of vehicles to consumers, but as of now, U.S. consumers have plenty of vehicles to choose from that wouldn't be affected much by the proposed new trade terms, depending on just how much Mexican parts content is in those "U.S." vehicles. No doubt that will change over time as well.
Before too long, vehicles from both countries will be on that level playing field without an advantage to either country.
Adding labor costs into the equation has been a long-sought goal of the partners in NAFTA. I am sure before long, some creative folks will figure out some new twists to give their company or nation an unfair advantage. But in the meantime, this level playing field will be in place.
I hope the Canadians understand that, personalities aside, it's very much in their best interest to get involved with this new agreement as well. If it is possible to create a free and fair trade zone at the same time, it should benefit all of these trading partners together.
It may be a real challenge to get labor costs in Mexico equal to their neighbors, but if and when it happens, it will certainly be very beneficial to Mexico.
It looks like real progress is happening, and we will just have to keep our fingers crossed.