How NAFTA Drove The Auto Industry South

President Bill Clinton signed the North American Free Trade Agreement into law 20 years ago on Dec. 8, 1993. One of the clear beneficiaries over the past two decades has been the Mexican automobile industry.

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One of the clear beneficiaries of NAFTA in these two decades has been the Mexican automobile industry. Ford, Nissan, Honda and Audi are just some of the companies expanding production south of the border.

As NPR's Sonari Glinton reports, it's all been part of a southern shift in North America over the last 40 years.

SONARI GLINTON, BYLINE: Mexico has had an auto industry since the '20s, but it really started getting big after NAFTA brought down many trade barriers between the U.S., Canada and Mexico.

GARY HUFBAUER: The transformation of the auto industry in Mexico, as a result of NAFTA, was nothing short of dramatic. It was, in fact, the biggest transformation of any industry in all three of our countries.

GLINTON: Gary Hufbauer is a senior fellow at the Peterson Institute for International Economics, a think tank in Washington, D.C. Hufbauer says Mexico has grown in part because, well, it had the most room for growth.

HUFBAUER: Because if you go back to the pre-NAFTA era, the auto industry in Mexico was highly protected - and I mean highly protected. The production was quite small and auto prices were two or three times higher than in the U.S.

GLINTON: Not only were the cars in Mexico more expensive, exporting or importing finished cars or parts was tough. Shipments got delayed at the border and were difficult to move around in an industry where, well, speed is of the essence.

Jack Nerad is a vice president and industry analyst at Kelley Blue Book. He says NAFTA changed a lot of that.

JACK NERAD: The American car industry was really the U.S. car industry, and there was a separate car industry in Mexico, and to some extent a separate car industry in Canada. And now, the North American car industry is, in a lot of ways, one in the same.

GLINTON: So if you were a global automaker and you wanted to sell cars in North America, the most important market for autos, you had to take a hard look at Mexico. There was access to the U.S. market. And the lowest paid Mexican worker makes less in a day than the highest paid American worker does in a hour.

So before NAFTA, there were only a handful of carmakers, now there are nearly a dozen major automakers in Mexico, and add to that, an explosion of suppliers. With all that, you might think, U.S. car jobs would just move wholesale to Mexico.

STEPHANIE BRINLEY: What is not happening is we're not closing plants in the United States and moving them to Mexico.

GLINTON: Stephanie Brinley is an analyst with IHS Automotive. She says Mexico has actually grown it's own auto industry by improving its infrastructure, its quality, and there's another reason: other free trade agreements.

BRINLEY: It's not just the North American Free Trade Agreement that allows trade between Mexico and Canada and the United States, but it's also some of Mexico's agreements with Europe and with Brazil and South America.

GLINTON: Many of the nearly three million cars a year that are produced in Mexico go to Europe and South America. While Mexico has come a long way, it still falls far behind the U.S. in productivity and, in many ways, quality. Jack Nerad with Kelley Blue Book says manufacturing autos in Mexico can still be a double-edged sword.

NERAD: There are infrastructure problems. There are problems with crime, corruption. Even sticking to contracts are a problem in Mexico. And so there are challenges there, certainly.

GLINTON: Nerad says NAFTA helped the Mexican auto industry reach its adolescence, and it's just going to keep on growing from there. Sonari Glinton, NPR News, Culver City.

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