On a recent trip to Mexico, I found myself assessing the new United States Mexico Canada Agreement (USCMA), and how it will affect the manufacturing industry—particularly automotive. I wanted to illustrate what changes USMCA brings to the table by examining the agreement objectively and independent of political notions about the leaders or the parties it belongs to.
Replacing the North American Free Trade Agreement (NAFTA) which was established in 1994, USMCA’s two biggest changes are to the country of origin rules and labour provisions. Under USMCA, 75% of automobile parts must be manufactured in Mexico, the U.S., or Canada to qualify for zero tariffs – a 12.5% increase from NAFTA. Further, 40-45% of the parts must be made by employees earning at least $16/hour by 2023.
Over the past 100 or so years, the auto industry has created and sustained a healthy middle class in many countries. In Canada and the US for example, the average auto factory employee’s annual income is roughly 2x the cost of the product they produce – a 2:1 ratio. To this point, this has not been the case in Mexico, but the new USMCA is a move in the right direction.
As Asian and European automakers are scrambling to open plants in North America, the higher costs of manufacturing in Canada due to the new carbon tax and the already-high cost of energy could pose significant challenges to opening these plants in Canada.
It is apparent that the Queretaro region of Mexico has been rewarded with significant investments from major automobile producers from every part of the world due in part to its attractive economic conditions and consistently responsible government administrations over recent decades. Depending on the region, the impacts of USMCA may differ. For Canada, the best outcome may be just to maintain our current manufacturing industry.
From a global environment perspective however, I believe the USMCA is a net positive. Keeping plants open in the U.S. and Canada is better for the global environment, as environmental regulations are tougher and more enforceable in those countries. Improving wages, worker’s rights and protecting human rights is also net positive globally.
As investments continue to flow into the manufacturing sector because of the USMCA, we can expect a greater push for innovation and technological adoption. With manufacturers witnessing the powerful benefits made possible through IIoT, more and more companies will be looking to make the transition to industry 4.0. Though some will approach the transition with a level of uncertainty, we at FreePoint are optimistic and ready to help organizations navigate the changing industrial landscape.
Reach out to us today if you are interested in learning more about Industry 4.0, or you are ready to make the transition. It can start today, in the plants, with the equipment and the people you already have.