
Japan auto companies triple Mexican pay rather than move to US - Reedx
https://asia.nikkei.com/Business/Automobiles/Japan-auto-companies-triple-Mexican-pay-rather-than-move-to-US
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erikw
Wow, this should at least provide for some very interesting natural
sociological experiments. For context, I make less than this as a software
developer in Chile, and still have no problems saving and living a comfortable
lifestyle. This is going to significantly impact the lives of folks working in
these factories, and it will be interesting to see how it will affect the
individuals, their communities, and the quality and competitiveness of the
factories.

~~~
AnthonyMouse
That's assuming it lasts. When you already have a factory in Mexico and now
you have to pay them $16/hour, it makes little sense to immediately move it
back to the US just in order to save $0 by paying US workers $16/hour instead.

But the next thing that happens is that it becomes more cost effective to
automate, so you start considering that. Then you don't employ as many people,
and they become skilled workers who maintain high tech robots instead of
unskilled workers turning wrenches, so you're not actually paying unskilled
workers $16/hour anymore.

Meanwhile the automation requires retooling, and maybe then you evaluate
whether to retool the existing factory or to build a new one in a place with
more skilled workers who can maintain the robots.

In year zero you just raise wages for the existing workers. In year two or
five or ten, something else happens.

~~~
HeadsUpHigh
The notion that car manufacturers from all the industries out there haven't
already automated anything that's worth automating is something that I can't
understand.

~~~
wtallis
"Worth automating" isn't a simple one-time binary decision. Whether a given
process is worth automating depends on the cost of automating it, and the
labor costs that it will save, both of which change over time.

~~~
HeadsUpHigh
Japanese manufacturers at least have had similar if not higher costs on
manufacturing in Japan( and Europe). And these factories still employ a large
number of skilled and non-skilled workers.

I don't think a bump in salaries that puts a country in the same ballpark as
existing manufacturing locations( not counting the extra costs of
manufacturing in the States or in Europe) is going to be such a big push for
more automation. After a certain point the versatility of human workers is
still useful.

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phkahler
Why move production to the US and pay more when you can just leave it where it
is and pay more? This seems reasonable.

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627467
> The US-Mexico-Canada Agreement requires 40% or more of parts for each
> passenger vehicle be manufactured by workers who are paid at least $16 per
> hour...

On face value this seems to be a very progressive condition.

~~~
microcolonel
It's kinda two ways. It raises the cost of automobiles (that's why analyses
project a reduction in automobile sales by a bit over a million vehicles per
year), reduces labour demand, and erases more low-skilled work; but those who
do get the jobs may be paid more than otherwise, until the numbers expire.

~~~
tom_mellior
> It raises the cost of automobiles (that's why analyses project a reduction
> in automobile sales by a bit over a million vehicles per year)

What do new cars cost in the US? Does a price difference of $500 or $1000
really make someone say "all right, I'd rather do without a car"?

~~~
mhb
Yes. Of all the people considering buying new cars, there are some at the
margin of buying or not buying.

~~~
microcolonel
Beyond that it seems more than reasonable, when the average cost of a new
vehicle is in the 30k range or whatever it is these days, a difference of 500
or 1000 dollars like the parent comment gives as an example is a solid couple
or few percent of the cost of the vehicle, almost by definition that will make
or break around the same percentage of sales.

~~~
yoloswagins
If you finance the car, that extra cost about extra ~$10/m

------
linuxftw
Obviously, nobody is going to move a state of the art facility that cost
billions just because their labor costs went from 'nothing' to 'almost
nothing.'

What it will do is prevent more things from leaving the US to go to Mexico.

Me being a cynic, I'm fully expecting the employees will have to return some
of that cash via forced employee dormitories and such, but we'll see.

~~~
gscott
Plus paying a person in Mexico $16 an hour is still 50% cheaper then paying an
American $16 an hour.

~~~
renewiltord
Is that payroll tax and stuff like that? Or something else?

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ixvvqktiwl
Sounds like a boon for Mexico, good for them. I guess it's kind of satisfying
to see these policies have the opposite of the intended effect.

~~~
samfisher83
Even triple the pay they are making $16 dollars/hour which is less than
whatever an american auto worker is going to make.

~~~
masukomi
Mexican workers get a dramatic quality of life improvement. US workers don't
have to work for less than market value / cost of living prices. Tens of
thousands of US people continue to get cheap cars. Sounds like a great deal.

~~~
gurumeditations
Exporting working class jobs from a higher cost of living area to a lower cost
of living area is on the whole a loss for the vast majority of people who are
not wealthy and a gain for those who are wealthy. It’s a blatant wealth
transfer from the masses to the wealthy few. So Americans get cheaper cars but
no way to pay for them, and wealthy Americans get record levels of wealth.

Globalism is a sham and it’s surprising to still see someone parrot its hollow
logic that only makes sense if you look at it in the short term and on a small
scale instead of as a long term society-wide trend.

~~~
ksk
Well, nobody is "owed" a job. Markets transform and respond to pressures. When
you operate in a saturated market like the US the only line item on the
balance sheet that is easy to tackle is labor costs, not revenue or profit.
Your customers aren't going to buy products from you because you gave a raise
to your janitor instead of replacing them with a roomba (relax, its a joke
:P). The China/Walmart economy is here to stay. For retail companies, the only
growth markets that you can sell into are the developing world markets around
the world. These are also the companies your retirement funds are invested in,
unless you don't want your savings to grow. If every country turned
protectionist, it will trigger a massive economic depression. I suppose we'd
come out of it eventually, if global warming doesn't kill us first :)

~~~
cmxch
So what do you do for those that end up on the wrong side of the equation,
especially those who have been there for a long time?

~~~
thephyber
I don't understand why some HNer is expected to have an answer for this
because no part of US society does.

We've underfunded career counseling in public schools for generations. We
don't have any healthy career retraining system like other OECD countries do.
Unemployment systems in the USA are nearly useless when it comes to retraining
employees -- they really just act as job boards. Most states don't seem
capable of attracting different industries, so when a batch of jobs leave a
region, those employees struggle to find a near replacement. We have massive
mental health and addiction problems so companies spend a lot of effort to
avoid hiring anyone who might raise these costs for the company.

US society doesn't actually care about employees who don't take care of
themselves. It's time we stop pretending like we do and call a spade a spade.

~~~
mbrodersen
Yep agree. At least be honest about not giving a s __* about other people.
That would be a small improvement.

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SpicyLemonZest
The article is making it sound like some kind of backfire, and I'm not really
sure why. It's gotta be good in the long run for US auto workers if their
competitors' wages triple.

~~~
Barrin92
Because the US now gets no new jobs but the price for the cars will go up as
the labour cost increases, proving the very trivial point that tariffs
function as a tax on domestic consumers. If the goal of the policy was to
redistribute money from Japanese carmakers and American consumers to Mexican
factory workers they've done a great job, very altruistic.

Also it's quite hilarious how quickly the reputation of the US has
deterioated. The US is now being treated like an unreliable country.

 _" We don't want to be whipped around by a policy that we don't know how long
it will last," said an executive at a Japanese automaker."_

~~~
colechristensen
Raising your neighbor's income means they will import more from you, it's not
backfiring, it's working as intended.

~~~
valuearb
But it’s not. It’s funding more robots for the Mexican plants, which means
fewer jobs for Mexican auto workers. So some workers will do better, others
worse. And American consumers pay higher prices, so they are worse off.

~~~
colechristensen
Are the robots cheaper or more expensive than human workers?

There is some broken thinking that high wages will increase consumer cost but
replacing humans with cheaper robots won't, cherry-picking armchair cause-and-
effect thinking to fit a "this is bad" narrative.

Reducing trade frictions forces economic equality, especially when that
reduction is tied towards some equality metric, like wages.

Products being cheap because of economic disparity in trading partners isn't
something to celebrate or bemoan the loss of. What is good for our neighbors
is good for us. So many people are arguing from both sides at the same time.

~~~
valuearb
The more you are forced to pay workers, the more attractive robots become.

The jaw of comparative advantage tells us that unrestrained trade benefits
both parties. It means we get to deploy our workforce into higher value and
higher paying jobs, while they get to increase their standard of living as
well.

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omega3
For context in Mexico the average wage for an auto assembly worker was $7.34
per hour and just $3.41 per hour for an auto parts worker in 2017.[0]

[0][https://www.cargroup.org/wp-
content/uploads/2018/04/nafta_br...](https://www.cargroup.org/wp-
content/uploads/2018/04/nafta_briefing_april_2018_public_version-final.pdf)

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haecceity
What are the benefits to the companies of increasing minimum wage if the
condition for no tariffs is increase minimum wage and move production to US?

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moltar
Of course, because as soon as they do that, they’ll start planning to phase
out humans as much as possible. It’s clear that we are on the cusp of total
automation. Moving a factory to US is probably just more costly than to pay
employees $16 for a few more years.

And the employees who are left are highly paid engineers anyways.

------
yellowapple
It turns out the real border wall was the friends we made along the way.

That is: if auto workers are being paid that minimum wage by foreign
automakers, that's gonna be a massive boon to Mexican household incomes, which
improves the standard of living for at least some people, and in a dramatic
way. This money will, I reckon, go straight toward things like
entrepreneurship, higher education, and other things that help with upward
mobility on a generational scale. This can (and I hope will) translate to less
emigration pressure, since fewer Mexicans will feel the need to move north for
US wages if they're already being paid US wages, and fewer migrants from
further south will feel the need to continue across the US/Mexico border if
they could instead settle in Mexico for similar pay and much lower cost of
living. This could persist long-term, since a better-educated and more
innovative population can give the Mexican economy one hell of a jumpstart
(and, importantly, help whip up a generation of Mexicans with the technical
education to keep up with the inevitable automation push).

I'm curious how this will play out long term, but it seems reasonable to me
that we should pay workers according to the value they create rather than
merely the cheapest employers can get away with paying (and contrary to what
the far-capitalists might claim, these are rarely if ever in sync, especially
when talking about outsourced labor; a worker in Mexico is not inherently
worth different than a worker in the US, so why should those two workers be
paid differently?), and I'm oddly optimistic about how this might play out.

------
gaukes
The big issue seems to be that companies don’t know how long this version of
NAFTA will last. If Biden becomes the next president and signals support for
keeping the agreement the way it is, there’s a good shot they’ll move to the
USA.

~~~
tzs
Even if they were sure it was going to last, why would they move to the US?

If they stay in Mexico, they can build cars for the US and Canadian markets
and make sure that 40% of the parts are made by workers making $16 an hour to
avoid tariffs, and in the same plant they can build cars for the rest of the
countries in the Americas but use parts made by workers making more normal
Mexican wages.

If they move to the US, they will be paying US levels of pay for both the cars
they build for the US and Canada and the ones they build for the rest of the
American continents.

Another disadvantage of building in the US cars for export to other countries
that are not Canada or Mexico is they would have to worry about a trade war
between the US and those other countries. If the current US administration
slaps tariffs on country X, and X retaliates with tariffs on some US export
and happens to pick cars as one of those exports, that is going to hurt the
car company's sales. If they had remained in Mexico, they would not have to
worry about US trade wars messing up their sales outside the US.

~~~
AnthonyMouse
> Even if they were sure it was going to last, why would they move to the US?

If it no longer saves them money to be somewhere else, it's good PR. You get
to hang a huge "made in USA" flag on your dealerships.

> If they stay in Mexico, they can build cars for the US and Canadian markets
> and make sure that 40% of the parts are made by workers making $16 an hour
> to avoid tariffs, and in the same plant they can build cars for the rest of
> the countries in the Americas but use parts made by workers making more
> normal Mexican wages.

People in the rest of the Americas buy different vehicle models. Chevy Beat,
Nissan March, Volkswagen Vento. Very popular in Mexico.

The US market also just dominates the market on the entire continent. It has
almost as many people as all of South America, but more importantly, they're
the people who buy new cars. Many of those other countries not only have lower
car ownership rates, a large fraction of their cars are used cars exported
from the US market.

So they don't buy nearly as many new cars and most of what they do buy are
different vehicle models.

> If the current US administration slaps tariffs on country X, and X
> retaliates with tariffs on some US export and happens to pick cars as one of
> those exports, that is going to hurt the car company's sales. If they had
> remained in Mexico, they would not have to worry about US trade wars messing
> up their sales outside the US.

This is assuming cars being assembled in Mexico are being exported in large
numbers to the countries likely to get into a trade war with the US, which are
predominantly on other continents. But the cars sold in those markets are
typically also manufactured there. The Yaris is popular in Europe, they make
them in France. The Buick Excelle is popular in China, they make them in
Shanghai.

The Toyota Corolla is manufactured on six continents.

The cars they make in North America are mostly going to the US. And a trade
war between the US and e.g. Costa Rica doesn't seem that likely, or if it
somehow happened, that much of a concern for US auto manufacturing.

------
jonahhorowitz
> The center also said U.S. car sales will drop by up to 1.3 million units
> annually due to the Trump administration's trade policy

This is incredibly good news, if true. We need to reduce the number of cars in
the US if we are going to have any chance of confronting climate change.

~~~
onion2k
Only if there's a corresponding drop in the number of cars in use. It could be
that people keep their old, inefficient, polluting cars for on the road for
longer rather than replacing it. That would be bad for the environment.

~~~
AnthonyMouse
There is some disagreement about whether this is actually the case. It takes a
lot of resources to build a new car. Meanwhile the average passenger cars has
been above 30MPG for 15 years now and the newer ones aren't dramatically
better than that. So you only come out ahead with a new car if you put a lot
of miles on it. But then that's still conflating "new" and "efficient" \-- a
2004 Prius still gets better mileage than the new car average.

This doesn't apply to electric cars, which do use dramatically less petroleum
(i.e. none), but they're mostly already made in the US, so making _petrol_
cars cost more may actually be an environmental advantage because more people
will buy electric.

