Canada, Mexico integral to US auto manufacturing from the start
Mexico and Canada have no domestically based automakers — yet U.S. vehicle manufacturers have relied on labor from their neighbors to the north and south since the early days of auto production in North America.
Though plans to slap 25% tariffs on Canadian and Mexican imports may be on hold for now, the looming threat stirs economic worry across the three countries.
Canada and Mexico are integral to the North American supply chain and have relationships with auto manufacturers dating to the early 1900s. Those ties remained strong throughout the 20th and early 21st centuries. When the automotive industry plummeted into catastrophe during the Great Recession, it wasn’t just the U.S. government that pitched in to preserve it. Canada offered its own tax dollars as part of President Barack Obama’s task force that led General Motors and Chrysler through bankruptcy.
K. Venkatesh Prasad, senior vice president of research at the Center for Automotive Research, said modern vehicle production in Mexico began with components before full-vehicle production was gradually introduced.
“As you draw a line over the last 20 years or so, there’s been steady investments made in Canada and in Mexico by the Detroit Three, as you might expect, primarily for cost reasons, and in a gradually increasing manner of complexity,” Prasad said.
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In Canada, manufacturers started with systems and jumped directly to producing cars, largely due to the proximity of Windsor to Detroit.
“Over the last four years, what you see is the same pattern, a little bit of inversion with how the dollars are being spent, with potentially more growth in money going to Canada than Mexico because of the investments in electrification,” Prasad said.
Harley Shaiken, a labor expert and professor emeritus at the University of California, Berkeley, said that with the most recent trade agreement, the United States-Mexico-Canada Agreement, President Donald Trump aimed to address flaws in the North American Free Trade Agreement of 1994 that led to American manufacturing job losses, a deal the UAW and other unions opposed.
The 2018 agreement has stronger language than NAFTA on worker rights and environmental protections, Shaiken said, but it hasn’t lessened the U.S. trade deficit with its neighbors the way the president intended.
“We were running over $100 billion trade deficit in 2023, most of it in the auto sector,” Shaiken told the Free Press. “U.S. shareholders are enjoying the gains, but the benefits are largely bypassing U.S. workers.”
More:Detroit chamber, Fain criticize Trump tariffs; list of affected automakers
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Mexican production origins
Though much has changed since the earliest days of automotive manufacturing, the ties that link the Detroit Three to Mexico go back 100 years.
In 1925, Ford Motor Co. opened a new company in Mexico City and built its first assembly plant there five years later. The plant had 260 employees and produced five Model Ts a day. Over time, production expanded to include the Model A, Mercury Cougar and Ford Mustang.
One advantage offered by the Mexican government was a 50% discount on import duties on inputs, rail freight tariff concessions and the promise of no union workers.
General Motors and Chrysler followed suit, with both having started Mexican vehicle production by 1938.
Japanese invasion and NAFTA
Automotive parts production in Mexico flourished in the 1960s with the creation of maquiladoras, foreign manufacturing facilities through which companies can import vehicle parts or assembly products without paying tax. The goal of the duty-free facilities was to encourage international investment in production, while foreign countries like the U.S. and Canada would benefit from cheaper labor.
In the 1970s and 1980s, the influx of Japanese automakers prompted further investment in Mexico, as U.S. automakers sought to offshore labor and cost-intensive production.
The establishment of the North American Free Trade Agreement in 1994 also made it easier for companies to move goods across the continent without paying duties. The revised agreement signed during Trump’s first term still supports this process.
Mexican wages are far lower than those in the U.S., with Mexican autoworkers making roughly about 10% of their northern neighbors today. Nonetheless, Shaiken said, “What I’ve found on the ground in many plants in Mexico is, in fact, Mexican productivity is comparable or even higher than U.S. productivity, and the quality is very high,” he said.
Shaiken calls it “high productivity poverty” — Mexican workers produce great products but aren’t earning a living wage.
“That affects U.S. workers because the combination of high productivity and low wages attracts investment, plants are closed here that are in many cases opened there,” he said. “But Mexican workers are also short-changed. They have small parking lots in Mexican auto factories because workers can’t afford the products they produce.”
Canadian roots
Trade relationships with Canada go back just as far as Mexico but workplaces are different thanks to the country’s strong unions. They also began with Henry Ford, who built his first Canadian automotive plant in 1904, largely to escape tariffs levied on Canadian imports.
A vestige of carriage production, the 35% tariff on vehicles coming into Canada prompted the Detroit automaker to set up branch operations across the river, according to Dimitry Anastakis, the L.R. Wilson and R.J. Currie Chair in Canadian Business History at the University of Toronto.
“It makes no sense to have a Ford Motor Plant in Detroit and a Ford Motor Plant in Windsor, but that’s exactly what happened because of the tariff wall,” he said.
This lasted until the 1960s, when Canada launched a trade war of its own against the United States after the invention of the automatic transmission, which flooded the Canadian market with vehicles made in Canada, and thus not subject to the tariff. By then, only U.S. companies’ branch plants remained in operation due to the scale and investment the auto industry requires.
In 1965, the Canada–United States Automotive Products Agreement was enacted, a precursor to NAFTA that removed tariffs between the two countries. This led to increased auto manufacturing in Canada and more jobs. The agreement was abolished in 2001, but by then NAFTA had more or less superseded it.
Big jump in Canadian-built cars sold in US
Without tariffs getting in the way, Ford, General Motors and Chrysler were able to “rationalize” their production in North America, including their Canadian facilities, to streamline and focus on the continent rather than one market at a time.
The effects were immediate and profound. In 1963, before the auto pact, out of the 632,000 vehicles built in Canada, a grand total of 921 were exported to the United States. In 1973, with the auto pact in full bloom, Canada built 1,589,000 vehicles and exported 1,092,000 of them to the United States.
“In the ’60s and ’70s, the Canadian industry was integrated right into the American industry,” Anastakis said.
As for labor, in its earliest incarnation, Canada’s union presence was an extension of the UAW, formed in 1937 following a strike at General Motors’s Oshawa, Ontario, plant.
Under Bob White, the legendary president of the Canadian Auto Workers, the branch split off and formed an independent union in 1984. Since then, it has merged with others to form Unifor in 2013.
“Canada has good labor laws. In a number of ways, they’re better than the U.S.,” Shaiken said.
Many of the jobs these agreements created favored blue-collar workers, but most of the decision-making behind vehicle and parts production stayed in the U.S.
“For more than 60 years, the Canadian and American auto industries have depended on each other. Together, we build best-in-class cars and trucks that remain the envy of the world,” Unifor National President Lana Payne said in an emailed statement. “Unionized autoworkers fought for and won gold standard collective agreements that created good jobs, raised living standards and built strong, vibrant communities.”
She added: “Two-way trade in automotive goods is about $160 billion per year and split virtually down the middle in near perfect balance. Threatening damage to this relationship, as Trump is doing, threatens good, union jobs on both sides of the border. It is both reckless and dangerous.”
North American labor counts
General Motors currently employs about 120,000 people in North America. Of those, 90,000 work in the U.S., 23,000 work in Mexico, and 6,000 work in Canada.
Ford Motor Co. has approximately 71,974 employees in North America, as of estimates provided on the company’s website for the third quarter of 2024. Of those, 5,480 are employed in Canada, and 7,000 in Mexico.
Stellantis has about 75,500 total North American employees, with 52,000 in the U.S., 8,600 in Canada and 14,900 in Mexico.
Jackie Charniga covers General Motors for the Free Press. Reach her at [email protected].
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