As NAFTA gets renegotiated, economist has a message: Bring back some balance
WATERLOO REGION — There has been a large-scale migration of auto-sector jobs from Ontario to Mexico under the North American Free Trade Agreement, and even more job losses are on the way without changes, says Jeff Rubin, an economist, author and senior fellow at the Centre for International Governance Innovation.
In a public lecture he will deliver Tuesday evening at the Waterloo think-tank, Rubin details the negative impacts of NAFTA on the auto sector, which is this country’s largest exporter and the foundation of the manufacturing sector.
After studying trade, investment, production and employment data, Rubin’s research shows two clear trend lines — the number of jobs going down in Ontario and the U.S., by 25 per cent to 30 per cent, and increasing by 400 per cent in Mexico.
Vehicle production in Ontario stagnated at about 2.3 million annually since NAFTA went into effect in 1994, but production tripled in Mexico during the same period, he said.
NAFTA was supposed to be a trade-off that increased profits for the car companies and lowered prices for consumers.
“You don’t want to see bankrupt auto companies in need of taxpayer bailouts,” Rubin said in an interview. “On the other hand the price
of profitability should not be the gutting of the domestic industry.”
American and Canadian governments are in talks to renegotiate the terms of NAFTA. Rubin has a simple message for the negotiators; bring back some balance.
Big carmakers like GM and auto-parts manufacturers have both sent thousands of jobs to Mexico. The Ontario auto-parts giant Magna employs 27,000 workers in Mexico.
“Whatever free trade agreement we eventually renegotiate can’t be simply directed at the benefit of Magna and GM shareholders,” said Rubin. “There is also the issue of Canadian workers, and there is also the broader issue of the industry’s imprint on the Canadian economy.”
The decline in the auto sector “is intrinsic” to the shrinking of the middle class and the stagnation of wages, he said.
The issues are making local, national and international headlines. Unionized autoworkers in Ingersoll are on strike against GM after the company cut 600 jobs there. The strikers want GM to commit to making the Equinox in their plant rather than in Mexico, said Rubin. “It is about who is going to produce it — low-wage workers or high-wage workers,” he said.
“And that’s why we need the balance back. Because if we don’t get the balance back it is pretty clear where this industry is going,” said Rubin. “The industry is going for further, and even more extreme downsizing.”
It is hugely important to this region, where manufacturing remains the largest sector with about 65,000 jobs comprising about 25 per cent of the region’s labour force. Many of those jobs are directly and indirectly related to auto parts and vehicle assembly.
Toyota announced in 2015 it was moving production of the Corolla, its best selling car, from its plant in Cambridge to a new plant in Mexico. After Donald Trump was elected, however, Toyota changed plans, and said it was moving production to Kentucky instead.
Since 1965 with the advent of the Auto Pact, and then the CanadaU.S. Free Trade Agreement in 1989, a vehicle was made in Canada for every vehicle sold in Canada, he said. “But when you include Mexico it is an entirely different game,” said Rubin.
About 13 per cent of the Mexican labour force works in agriculture, compared to two per cent in Canada and the U.S. So hourly wages of $2.50 making auto parts, or $5 in assembly plants, are good jobs in Mexico. And since 2000 the Mexican peso lost half of its value against the American dollar, making vehicles produced there even less costly.
The list of auto plant closures in Canada includes the GM assembly plant in St. Therese, Que. (2002), the Chrysler van plant in Oshawa (2003), the Ford truck plant in Oakville (2004), the GM truck plant in Oshawa (2008), the Ford plant in St. Thomas (2011) and the Navistar International truck plant in Chatham in 2011. In Waterloo Region Kitchener Frame, formerly Budd Canada, closed in 2009 and Lear Corp. in 2015.
Even with those closures, between 2004 and 2013, Ontario produced more vehicles than any other NAFTA jurisdiction. It lost that crown to Mexico in 2013, and Canada now produces fewer vehicles than either Mexico or the U.S. Canada used to the fourth largest maker of vehicles in the world, but it is now 10th, said Rubin.
In 2014 the former Conservative government announced a free trade deal with South Korea, which gave the automaker Kia duty-free access to the Canadian market. In exchange, Canadian beer is sold in South Korea with no duties. After the deal was made, Kia said it was building a plant in Mexico to make vehicles for the Canadian market.
Politicians on both the left and the right in the U.S. and Europe are vowing to scrap free trade agreements, signalling a huge shift in economic policy that began in the 1980s.
“I think we are on the cusp of a change, and it will be interesting to see because it hasn’t really taken root in Canada’s political system,” said Rubin.
“But it is coming.”