Trump and the Auto Companies

by Rich Lowry

Lots of good information on the auto industry in this Wall Street Journal editorial:

It’s true that auto makers have shifted production of small cars to Mexico, where wages are about 85% lower than in the U.S. But small cars aren’t profitable to make in the U.S., though they are necessary to meet the Obama Administration’s increasingly onerous fuel-economy mandates.

Some brave soul should also tell Mr. Trump that auto makers have moved production in Mexico because of its free-trade deals that provide better access to global markets. Mexico has 10 trade deals with 45 countries including the European Union and Brazil, which make up half of the global car market. The U.S. has 14 agreements with a mere 20 countries.

Nearly 15% of the cars produced in Mexico are destined for Europe and Latin America, where they often face lower tariffs than do cars exported from the U.S. Lower tariffs on exports exceed labor savings on Mexican-made cars by four times.

Yet even with all of these cost advantages, only 18% of U.S. auto makers’ North American vehicle production is in Mexico. U.S. companies continue to make most of their higher-margin trucks and SUVs in the U.S. as labor is a smaller share of the gross margins and production costs for large vehicles. Manufacturing heavier vehicles near their main market also cuts transportation costs.

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