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  February 20th, 2017 | Written by

Does Mexico’s Auto Industry Threaten US?

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  • The US will export nearly $30 billion in vehicles and parts to Mexico this year.
  • Auto making involves highly complex supply chains.
  • Parts and partially assembled auto units move across many borders.

Since the formation of NAFTA in 1994 Mexico has blossomed into one of the world’s leading producers of motor vehicles and parts. Manufacturers from all over the world, including the US, have established productions facilities there.

According to statistics from the Organisation Internationale des Constructeurs d’Automobiles (OICA) in 2015 Mexico made 3.6 million vehicles (passenger cars and commercial vehicles), of which over three-quarters were exported. Since 2000 production has risen at an average annual rate of 4.5 percent.

Mexico is now the biggest provider of vehicles to the US with $47.3 billion of Mexican-made units crossing the border in the first 11 months of 2016 and another $51.6 billion of parts making the same journey.

All of this has attracted the ire of President Donald Trump, who claims that Mexico is stealing US jobs and has threatened to slap Mexican imports with special tariffs and to punish US companies from relocating their production facilities abroad.

But, as a recent Drewry report noted, the auto business is not a one-way trade. The US is on course to export nearly $30 billion in vehicles and parts to Mexico this year, second only to Canada. The auto making trade is highly complex supply chain with parts and partially assembled units often moving across many borders.

The rise of the automotive sector in Mexico has been attributed in some quarters to its relentless pursuit of free-trade agreements (FTAs) around the world. While it is true Mexico has been much more active on that front than the US, the report from Drewry noted, that analysis doesn’t consider whether the business would have arrived in any case to tap into Mexico’s highly productive and lower paid workforce.

Even with its higher costs and fewer FTAs, the US has not been ignored by vehicle manufacturers. Since the slump in vehicle production of 2009, the US has seen production rise 16 percent annually, only two points below Mexico. The thrust of the production recovery has not come from the Detroit brands but from Toyota, Nissan, and BMW.

From 2010 to 2015 non-US manufacturers upped their production in the US by 114 percent, whereas GM and Ford increased activity by only nine percent.

“It is clear that Mexico’s rise up the automotive ladder has not significantly impeded US production or jobs in the sector,” the report concluded, “which have swelled by about 50 percent since the recession to nearly one million, a sizeable number of which were generated by foreign companies.”

It is possible that with more liberal trade agreements the US might have been able to grow auto production and jobs even faster. “Either way,” the report concluded, “Drewry cannot believe that the way to stimulate the industry is via ultimatums over social media to foreign companies that are already helping to improve the economy.”

Besides which, data shows Americans prefer foreign auto alternatives to US brands. Non-US manufacturers accounted for 68 percent of all light vehicle sales in the US last year.