Which is not exactly a breathless announcement for anyone who knows anything about the automotive industry. Yes, cars, trucks and crossovers are manufactured in Mexico. But these vehicles aren't being produced by a Mexican-owned vehicle manufacturer. Rather, they are being produced by companies named "General Motors," "Ford" and "FCA U.S. LLC," among others. The last-named isn't, like GM and Ford, a U.S. company since it is part of Fiat Chrysler Automobiles, which is based in the Netherlands and headquartered in London — for tax purposes. But we'll include it in the list because Sergio Marchionne was recently President Trump's "favorite" during a meeting at the White House because FCA is shifting some truck production from Mexico to the U.S.
There are plenty of automotive plants in Mexico and more are being built. Nissan, VW Group and other OEMs have modern, advanced manufacturing facilities there, too. Why? Because the auto industry is a global industry. And because it makes economic sense.
The North American Free Trade Agreement (NAFTA) went into effect on Jan. 1, 1994. And according to the Office of the United States Trade Representative, which is part of the Executive Office of the President, "Tariffs were eliminated progressively and all duties and quantitative restrictions, with the exception of those on a limited number of agricultural products traded with Canada, were eliminated by 2008."
But President Trump doesn't like the fact that companies — in their own economic interest — have build factories in Mexico that build vehicles that are shipped to the U.S. He thinks those jobs should be based in the U.S. Presumably the accountants at the Detroit Three. as well as the bean counters in places ranging from Stuttgart to Yokohama, have calculated that it makes more financial sense to be in Mexico — as well as in England, Germany, India, China, Hungary, etc. Again: This is a global industry.
NAFTA is being renegotiated. Things aren't going well. So apparently the administration is thinking about playing the Section 232 card.
Which is rather unbelievable.
Section 232 is part of the Trade Expansion Act of 1962. According to the Department of Commerce, it "authorizes the Secretary of Commerce to conduct comprehensive investigations to determine the effects of imports of any article on the national security of the United States."
What that has to do with a Chevy Equinox built in San Luis Potosi or a Ford Fusion built in Hermosillo is mysterious. The answer might be found in one of the elements of Section 232, which has it that the commerce secretary — currently Wilbur Ross, who, earlier in his career established an automotive supplier that is headquartered in the Grand Duchy of Luxembourg — can look into whether there is an effect on production capacity "needed for projected national defense requirements" or "the loss of skills or investment, substantial unemployment and decrease in government revenue."
So let's see. The first might be a fear that were war to break out there wouldn't be a sufficient number of factories to build munitions. Chances are if war breaks out and the U.S. homeland is under attack, there isn't going to be time to convert SUV plants into tank plants. There probably won't be much more time to do anything but duck and cover.
But the Detroit Three are investing literally hundreds of millions of dollars into their U.S. facilities, so there isn't a lack of investment.
Also, the U.S. unemployment rate currently stands at 3.9 percent.
And last December President Trump signed what he called the "biggest tax cut in U.S. history," so presumably it doesn't have to do with revenue.
Should Section 232 go into effect, it will put a 25 percent tariff on imported vehicles. This will affect not only imports from Mexico, but from everywhere else.
Perhaps there isn't an awareness that the largest Toyota assembly plant in the world is in Kentucky or that the factory where BMW builds its SUVs, its biggest plant, is in South Carolina, or that Mercedes has invested well over $1 billion in manufacturing capability in Alabama. Which means a whole lot of well-trained, well-paid, tax-paying Americans workers, employed by the companies that stand to get penalized.