Auto Industry jobs back to the USA? A close look at USMCA auto-provision & expansion of section 232
Ford started making cars in the US in 1903. The automotive assembly line is a glory of American history. In later years globalization change the entire automotive industry. Many car companies branch out to different countries to complete their entire production process. No car company will just stay in one country to finish the entire process because car manufacturing is incredibly complicated. Our president trump always insists that he can bring car manufacture jobs back to the United States. When you take a close look at trumps' recent administration from USMCA to the expansion of section 232, he tries very hard to deliver his message, " I want car companies to move back to the United States. I want to see the old days in Detroit coming back. I want second, third or fourth Detroit to create millions of jobs for America."
Will it work?
Recently, the U.S, Canada, and Mexico officially passed the USMCA trade deal to replace NAFTA. When you look at USMCA Auto-provision, the USMCA requires that
1st, 75% of work on vehicles be done within North America. That's a boost from NAFTA's quota, which was only 62.5%.
2nd 70% of a car’s steel and aluminum purchases must be made in North America (melted and poured principle ).
3rd, 30% of the work must be done by workers earning $16 per hour, and that number will gradually move up to 40% by 2023. You have to fulfill all of the 3 criticals in order to enjoy the free duty.
That means car manufacturing is for sure in a high-pay environment. American workers are very expensive. And now even using Mexican workers are pretty expensive too. ( The $16 per-hour quota is three times the average Mexican worker wage rate)
Now the car manufacturer needs to think shall I rather spend 16$/hour payroll to help Trump to create manufacturing jobs for Americans or pay 2.5% tariff rate ( a lot of auto parts duty rate is approx 2.5%) but I can leverage competitive advantages of different country to maximize production efficiency?
Expansion of section 232
On Tuesday 28th, 2020, the White House recently issued a Presidential Proclamation expanding the scope of Section 232 duties to include certain “derivative” products of steel and aluminum to prevent circumvention of the initial Section 232 duties. Yup, they see one goes down and one goes up. So they get up and fix the holes.
The steel derivative tariff rate will be 25 percent ad valorem; the aluminum derivative tariff rate will be 10 percent. Main tariff numbers are listing as following in bold,
-nails, tacks (other than thumbtacks), drawing pins, corrugated nails, staples (other than those of HTSUS heading 8305) and similar articles, of iron or steel, whether or not with heads of other material (excluding such articles with heads of copper) that are (a) suitable for use in powder-actuated hand tools, threaded (described in subheading 7317.00.30) or (b) of one-piece construction, whether or not made of round wire (described in HTSUS 7317.00.5503, 7317.00.5505, 7317.00.5507, 7317.00.5560, 7317.00.5580 or 7317.00.6560 only )
2) bumper stampings of steel or aluminum, the foregoing comprising parts, and accessories of the motor vehicles of headings 8701 to 8705 (described in HTSUS 8708.10.30)
- stranded wire, cables, plaited bands and the like, including slings and similar articles, of aluminum and not with steel core, not electrically insulated, that (a) comprise electrical conductors and are not fitted with fittings or made up into articles (described in HTSUS 7614.90.20), (b) do not comprise electrical conductors and are not fitted with fittings or made up into articles (described in HTSUS 7614.90.40), or (c) are fitted with fittings or made up into articles (described in HTSUS 7614.90.50)
P.S, the picture just explains a small fraction of the tariff covered products and cannot be used for tariff determination.
Did you find out something in common? The expansion of the product scope of section 232 mainly focused on parts and accessories that could be part of auto manufacturing. The Presidential Proclamation's main purpose is to prevent the import of auto parts from foreign countries and encourage source auto parts from North America and mainly the U.S locally.
I am not good at making political reviews. I don't want to say if bringing back manufacturing jobs is a realistic venue. I would raise a different point, one word, automation.
In many states, the most common occupation is truck drivers. What happens when self-driving trucks take over the road?
What happens when automation has advanced to the point where we use technology to do farmer's work? Right now it’s less than 2% of populations are farmers. 2% of farmers produce far more agricultural food to feed people in the United States and even have a surplus to export to other countries.
So, I think it is irrelevant to jobs whether you can bring manufacturing back to the U.S. Automation will eliminate jobs it might have brought. The real task is coming up with sensible policies for the post-labor world.