Last week’s State of the Union address highlighted the success of replacing the North American Free Trade Agreement (NAFTA) with the U.S.-Mexico-Canada Agreement (USMCA). The speech presented several key benefits for the automotive sector that are dissected in this blog post.

The creation of “100,000 new high paying U.S. auto jobs”  – This figure is much higher than the estimate published by the U.S. International Trade Commission (USITC) last year. The USITC report reveals that the USMCA would increase employment in the automotive industry by more than 28,000 Full Time Equivalent employees. The gain in employment would offset the 1,500 jobs lost in vehicle production.

The number of expected new jobs appears quite optimistic considering the loss of tens of thousands of jobs over the last couple of years. According to Bureau of Labor statistics, the number of motor vehicle manufacturing and parts jobs dropped by 24,000 to just under 987,000.

General Motors and Ford have had to halt production and close some of its plants, which has resulted in the loss of tens of thousands of jobs to remain competitive in the current economic climate.

Some of the “new” jobs may merely bring back the jobs that had been lost.

The same US International Trade Commission also estimates that the USMCA will result in an increase in investment of $683 per year in the automotive sector. Furthermore, we should expect to see an increase in price, as well as a decline in consumption.

Strong support by U.S. labor unions – Labor unions, such as the AFL-CIO, supported the agreement because of the strong enforcement of labor provisions.

NAFTA just had a side agreement with 11 guiding principles regarding worker rights.

The USMCA, on the other hand, does so much more. Here are few differences:

  1. Countries must go beyond their own national laws to adopt and implement international labor laws set by the International Labor Organization
  2. Discourages the import of goods produced by forced labor
  3. For the first time, penalties will be assigned for any violation of the labor agreement
  4. Rule that 40-45% of the parts for certain vehicles and trucks that receive duty-free treatment must be produced in a high wage factory, in which workers earn a minimum of $16 per hour

Furthermore, Mexico signed its own labor reforms into law in 2019. Some of the reforms include protecting Mexican workers’ right to vote for union representatives by secret ballot, join unions of their choice, and create an independent labor court to resolve any labor disputes between union workers and employers. The Mexican government’s active involvement in labor union will be greatly reduced.

The USMCA has been signed by Mexico and the United States. Canada still has to approve and sign the USMCA.

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