The United Auto Workers union says that the key to resolving trade deficits caused by the North American Free Trade Agreement is to boost wages in Mexico.
The Trump administration is in the midst of a historic renegotiation of NAFTA, the 1994 free trade agreement between the United States, Canada, and Mexico. UAW President Dennis Williams issued a statement on Thursday urging negotiators to place a "special emphasis on Mexican workers, whose suppressed wages are harmful for all three countries."
"Toothless labor chapters from failed trade agreements will not get the job done. We need an innovative approach. If not, NAFTA will continue to fail workers as it has for nearly a quarter of a century," he said.
President Donald Trump's opposition to NAFTA, as well as the Obama administration's Trans Pacific Partnership, earned him support from traditionally Democratic blue-collar workers in Pennsylvania, Wisconsin, and Michigan—states that delivered him to the oval office.
Trump touted NAFTA renegotiations at a Harrisburg, Pennsylvania rally on Wednesday. He called the country's free trade agreements "embarrassing" in a speech aimed at boosting his proposed tax reforms that would lower corporate rates from 35 percent to 20 percent, while increasing the child tax credit, eliminating the estate tax, and reducing the eight individual income tax brackets to four.
"I am right now renegotiating trade deals that are so horrendous and so one-sided and so embarrassing for our country," he said. "We are … renegotiating NAFTA. We're renegotiating various other deals with foreign countries that are so embarrassing and so horrendous that you would say, why on Earth would anybody have signed a deal like that?"
The UAW has been a major critic of NAFTA since President Bill Clinton signed it in 1994. The auto industry witnessed a significant decline in traditional manufacturing as car and parts factories relocated from Detroit to Mexico, as well as right-to-work states in the south.
The union decried the expanding trade deficit with Mexico, which increased from $3.5 billion in 1993—the year before NAFTA was signed—to $45.1 billion in 2016, while auto parts deficit went from $100 million to $23.8 billion. Overall, the United States exported $42.9 billion in auto parts in 2016, while importing $71 billion, according to the Commerce Department's International Trade Administration.
Williams singled out labor costs as the primary culprit for the shifting landscape, saying the average Mexican autoworker makes about $3 an hour. American autoworkers earn substantially more, with hourly rates of $38 at non-union Volkswagen and $58 at unionized GM. The labor leader emphasized that he did not fault Mexican workers for the loss of American jobs.
"Mexican workers are not to blame for NAFTA’s failures," he said. "Labor standards continue to be dismal, since Mexican workers are prevented from exercising their rights and bargaining for better wages and working."
Trump's distaste for free trade agreements has led to speculation about the "pact's demise" after he acknowledged it was "possible" the agreement could be scuttled if renegotiations did not succeed at a Wednesday meeting with Canadian Prime Minister Justin Trudeau.
Eliminating NAFTA could end up hurting the auto industry, according to the Center for Automotive Research.
The group's analysis of NAFTA found that Canada was the largest importer of American auto parts receiving $22 billion in goods, while Mexico was the second largest, taking in $20.2 billion. The study estimates that eliminating NAFTA would create more than 22,000 American manufacturing jobs, but would also eliminate 31,000 automotive jobs because automakers would likely shift production from Mexico to other low-wage countries in Asia, Eastern Europe, or South America, rather than back to the United States.
"By producing cheaper automotive parts and components on the ‘near shore' in Mexico rather than truly ‘off-shore,' Mexican automotive plants helped sustain a competitive automotive industry across North America," the study says. "Michigan’s high concentration of engineering and automotive-related employment could be at risk to foreign countries if production shifts outside the NAFTA region."
Auto industry consultant Edward Niedermeyer pointed to Thursday reports in which a Canadian union official said GM threatened to move an Ontario plant's production to Mexico if striking workers did not return to their jobs. Lower costs in that country mean that Canadian and U.S. "workers have very little negotiating position" with their employers. The Mexican auto industry, however, has other strengths that will make renegotiation tougher for the Trump administration.
"One of the main things to remember with regards to Mexico's competitive advantage in autos is that it has free trade agreements with the EU and South America in addition to NAFTA, so plants there have way more flexibility to serve a variety of global markets than U.S. plants," Niedermeyer said. "The U.S. market is peaking and leveling off whereas other markets continue to enjoy better prospects for growth, so unless the U.S. has agreements which allow U.S. plants to export competitively, it's going to be harder to get automakers to invest here."
Williams said the U.S. should not allow companies to steer the direction of renegotiation because their priorities are to driving down costs, rather than creating American jobs.
"We must stop allowing companies to abuse their workers to gain a competitive edge," he said. "No amount of spin by corporate lobbyists representing companies who outsource can change the facts on what has happened to workers as a result of NAFTA. … If multinational corporations remain in the driver’s seat, NAFTA renegotiations will not succeed and working people will continue to suffer."
The United States began renegotiating NAFTA in August. The current round of talks is scheduled to run through October 17.