The new NAFTA (aka North American Free Trade Agreement or United States Mexico Canada Agreement) has an interesting minimum wage requirement that is not well understood.  Here are the key facts:

  • USD $16/hour wage minimum is required on 40% of the components in cars and 45% of the components on trucks
  • The $16/hour is required to be paid by the manufacturer to its EMPLOYEES and not the contracted suppliers to companies like GM, Chrysler and Ford
  • $1.60 of that $16/hour can be accounted for by tech jobs that are not directly related to vechicle assembly

Beyond that all increases in minimum wages result in substitution.  What that means is when one input increase in cost (i.e. labor, steel, electricity…) companies reevaluate alternatives (i.e. automation, plastics, on-premise solar…).  In many cases companies will not only look at alternatives but in face invest heavily in developing future alternatives in an effort to protect themselves from price shocks.

In the case of the USMCA / NAFTA2 , companies are definitely increasing investment in automation, including new automated plants in Mexico.  New high tech plants have far fewer jobs, but those jobs pay much more so the $16/hour wage minimum is easier to achieve.

This 2.5 minute video edited from a 25 minute full version you can watch HERE if you wish.



1 Comment

Anonymous · January 20, 2020 at 9:00 am

Amazing! Its actually remarkable paragraph, I have got much clear idea of how NAFTA2.0 really works.

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