Toyota made a huge announcement today [SEE HERE] which’s a direct outcome of the NAFTA replacement USMCA trade deal; in addition to the brand-new 75% rule of origin within the Auto sector.
The Toyota announcement is actually a total of $13 billion investment in addition to includes expanded component part production in: Alabama ($288 million), Kentucky ($238 million), Missouri ($62 million), Tennessee ($50 million) in addition to West Virginia ($111 million). Additionally, Toyota will open a brand-new assembly plant in Huntsville, Alabama ($1.5 billion) in addition to serious investments in several some other areas. [Details Here]
The guiding decision here relates specifically to the construct of the USMCA (NAFTA replacement). Toyota was previously focused on multi-billion-dollar investments in Canada as they exploited the NAFTA loophole in addition to procured component parts coming from Asia for North American assembly in addition to shipment into the U.S. Market. However, when they renegotiated NAFTA in addition to created the USMCA President Trump in addition to USTR Lighthizer closed closed the loophole.
The brand-new USMCA agreement requires which 75% of automobile parts must be made in North America; in addition to 45% must come coming from plants with minimum labor costs ($16/hr); or face tariffs to access the U.S. market with the finished not bad. As a result Toyota has to either pay a tariff to continue importing Asian component parts, or move the higher-wage component manufacturing directly into the U.S.
Obviously, Toyota chose the latter. They made the best decision for their financial plan; in addition to the right decision for the U.S. This specific outcome is actually exactly how tariff in addition to countervailing duty applications are supposed to work to protect U.S. workers in addition to manufacturing.
With the increased Steel in addition to Aluminum manufacturing coming on-line, also a result of well-placed countervailing duties, the raw material for the Toyota component group is actually today available within the U.S. to make the parts 100% Made within the USA.
How’d ya like them apples.
Oddly enough we predicted these moves in August 2018 right after we learned of the USMCA details. At the 30,000 ft level, the USMCA deal positioned Mexico in addition to Canada to retain the current multinational investments, however slowly work through a process to withdraw any advanced manufacturing investment. Through a series of sector-by-sector standards on origination the USMCA deal puts the decision-creating on the companies while simultaneously closing the fatal NAFTA loophole.
The USMCA agreement makes an economic manufacturing partnership between the U.S., Canada in addition to Mexico. For assembly products like Autos third party component providers will have to produce the actual parts in addition to origination material within North America.
U.S.T.R. Lighthizer put the details forward: ♦The NAFTA Loophole closure is actually explained in Summary Form HERE; with emphasis on the Auto-Sector. The key is actually a 75% part origination level for auto-assembly; in addition to a 40-45% level for parts which has a minimum $16/hr wage rate. The final auto-sector source-origination rate (75%) was higher than anyone thought possible during the lengthy negotiations.
Keep in mind Toyota is actually not the first Auto maker to respond with increased U.S. investment. Prior to the USMCA German auto-maker BMW began building a $2 billion assembly plant in Mexico. Under the old NAFTA plan most of BMW’s core parts were coming coming from the EU (steel/aluminum casting components, engines, transmissions etc.) in addition to/or Asia (electronics, upholstery etc).
However, under the USMCA the Mexico BMW assembly plant has to source 75% of the total component parts coming from the U.S, Canada in addition to Mexico; with 45% of those parts coming from facilities paying $16/hr.
The result was BMW needing to quickly modify their supply chain, build auto parts within the U.S. in addition to Mexico, or they could end up paying a tariff on the assembled final product.
Like Toyota, BMW made the financial decision to open a brand-new engine in addition to transmission manufacturing plant in South Carolina…. exactly as Trump in addition to Lighthizer planned.
in addition to don’t forget Fiat Chrysler made a similar announcement in February: “The automaker says which will hire 6,500 workers in addition to invest $4.5 billion by adding a brand-new assembly plant in Detroit in addition to boosting production at a few existing factories.” (more)