Labor unrest in China could be Mexico's gain

Posted by: David Welch on June 10, 2010

It seems like Chinese workers want a bigger piece of the economic pie. The recent strike at a Honda transmission factory ended with workers getting 24 percent wage hikes. But don’t expect U.S. auto workers to start winning back work from China. The more likely beneficiaries are in Mexico. The rising wages in Chinese auto plants just about match the $7 an hour all-in cost, including benefits, in Mexican plants, says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich. If you add in the $1,200 to $2,000 per-car cost to ship vehicles across the Pacific, ‘Ole Mexico looks better all the time. Shipping auto parts is cheaper than sending a whole cars across the ocean, but you get the idea.

Same goes for auto parts factories. Mexico has tariff-free trade deals with 25 countries, McAlinden says. That makes it an ideal place to bring in raw materials and then ship cars or parts. In fact, if Chinese carmakers want to invade the North America market, building in Mexico might be there best bet. McAlinden says that 16% of North American vehicle production is in Mexico and he expects it to grow to 20% in the next few years. Japanese automakers have even asked suppliers to set up shop in Mexico—not Asia—to supply parts to their U.S. plants, McAlinden said. The U.S. will still go begging for those jobs.

Reader Comments

Waitaminute

June 10, 2010 8:40 PM

Thanks UAW.

Tom

June 11, 2010 9:24 AM

Next is clothing, we are having a hard time getting our goods from China as a cultural change is taking place and the workers are being told to stay in the country. Now they are having a hard time getting the workers back into the factories in the cities. Moving our lead times to an extra 4 weeks.

greg

June 11, 2010 10:16 AM

Honda is in China for the Chinese auto market, the largest and fastest growing auto market in the world. You think Honda would relocate its plants in China to Mexico because Chinese auto worker's wages and salaries have finally caught up with Mexico's?

jack

June 11, 2010 1:00 PM

Anti-China elements never stop trying to undermine China's advance.

I remember Mexico tried to sell itself by pointing out they didn't have SARS or other infectious diseases. Shortly after, they had swine flu. Now, some "normal" labor movements and you tried to sound as if the sky is falling. "Unrests"? No worse than the drug warfares in Mexico!

Strategery

June 11, 2010 4:41 PM

If you can't buy USA, Mexico (or our other neighbors) is the next best thing. When we send money to Mexico, more of that money will come back to the USA than if we send it to China. Growing Mexico's economy will promote peace in the region, and it will help reduce illegal immigration. I think the biggest problem is the corrupt government--but governments in the USA are corrupt too.

Robert Nguyen

June 12, 2010 12:47 AM

It's healthy to see the workers in China unite and rightfully demand their rights. This is NOT unrest but a normal development.

Shailesh S. Ail

June 12, 2010 1:27 AM

For a Balanced Economy growth looking to the Auto Industry Profitablity Global Auto Industry should Focus their their New Plant or Existing Plant to be Relocted to Brazil and India both for Cars and Components Brazil will cater US and Latin America and India will Completely Cater to Asian countries and Europe at large. There is too much High Potentiality in case of resources and cheap labour force in India than Compare to China.

Xpat

June 12, 2010 10:43 PM

All the factory owners have to do is share some more of the (supposedly razor thin) profits with the workers, most of the owners driving BMW's, owning several mansions, preparing retirement in Canada etc. Capitalism is alive and well in China... There's so much money floating around, not even funny.. You feel poor these days being an expat... In fact it might well be the Chinese setting up factories in Mexico, being so cash rich or well funded..

The pay structure in China is almost like: owner and investors get 90% of the profits, rest of the company get paid (after 3 months of work) "regular" wages...

The wage gap is a big concern for the officials also... everybody can see the wealth across the street.

Johar

June 13, 2010 1:31 PM

@Jack : Who cares whether it is anti china or not. All that is needed is the information. I don't even care your pro chinese sentiment. Pro-Chinese element never stops raising theirselves higher than reality.
@Greg: Do u think so ? Chinese market ? What happens when the financial world melted ? Chinese economy is severely affected and thus reduces its growth. It depends on the outside not inside. Without export, there will a lot less income per capita and there will be a lot less consumption.
It has no strong domestic market. Fastest growing auto market ? From what size ? For example: 3% of its pop. buys car and it increases more than 10%. After 10 years how much has changed ? 1.1^10 x 3%.
Do u get it ?

Daniel Kroc

June 13, 2010 8:45 PM

Unrest is not the real problem. Opening a factory for export in China is not a wise move - long term. 1) China is under huge pressure to revalue its currency. 2) China is under growing pressure to reduce its global trade surplus as it is not sustainable. 3) Wages, both blue and white collar, are under pressure to rise - as they have to rise as living costs have become unaffordable for most. 4) China is quickly trying to move to a higher value added economy and away from cheap labor intensive production. I was in China in 1988 when they could barely make coat hangers or feed their people - in 20 years they went from importing food to survive to being the largest exporter, largest creditor, and a net food exporter. Imagine what the next 20 years will bring?

Yes, Mexico will benefit - but not as much as people think. Once the ultra-low-wage / currency-manipulation stage of China is over the impact will be felt around the world.

Daniel Kroc

hindu power

June 14, 2010 9:18 PM

Go Mexico go !!!


Hindus are behing you.

Jean

June 14, 2010 11:01 PM

Quite a misleading article given that China currently exports almost no cars to the US. Almost all car production in China, including the Honda plant mentioned in the article, is for domestic consumption. The American car industry had already lost to the Japanese and Germans long ago despite three decades of blatant protectionism.

But the author did make one important point. That is, even if cost does rise in China, no matter due to increasing wages or appreciating currency, manufacturing jobs will NOT go back to the US. It may go to Vietnam, or Indonesia, or Mexico, but NOT to the US. That's why New York Democrat Charles E. Schumer is such an idiotic demagogue barking at the wrong tree when calling for appreciation of the yuan.

@Johar

June 17, 2010 4:37 AM

To Jahar: Red necks like you need to read up on world business news. China has already exceeded the US in both auto production and consumption in 2009. I'm not gonna give you the link, since you can easily google. Next time, read more before you make a fool out of yourself again. Get it?

Westernfan

June 22, 2010 11:14 AM

I doubt Mr. Schumer really beleives that there will be many jobs leaving China for the U.S.- not gonna happen. However, higher labor costs, due to currency changes or labor unrest, will increase the costs of manufacturing there. That may make further offshoring less attractive, and help the U.S. somewhat in markets where they compete with China more directly.

Peter

July 6, 2010 2:15 AM

It is not looking as it portrayed because china will took immediate action to overcome this tragedy on their car manufacturing industry and they will have success because they have very strong control over their economic business.

In terms of Mexico they also has their own plus points like tariff-free trade deals with 25 countries but the emerging market is in asia not in north america. It will be easy transporting the parts of cars through out the asia from China than Mexico.

eva

July 23, 2010 3:22 AM

It's healthy to see the workers in China unite and rightfully demand their rights. This is NOT unrest but a normal development.
I can’t agree with more.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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