Changes in new value chains in North America.

Publication Type:

Conference Paper


Gerpisa colloquium, Paris (2020)




Is it possible to deal with the issue of the architecture of new value chains without first having addressed the issue of the USMCA?
Is it possible to deal with the issue of digitalization, globalization, de-globalization and the future of work without having attended to the USMCA issue?

From the point of view of what happens in Mexico, from before the serious problem of the Covid-19, which changes expectations, and under the understanding that in this country who decides on the issues of architecture of the old and new value chains They are, mainly, the management of the automakers and, subsequently, those of the auto parts factories.

In both cases, in Mexico, they are controlled by foreign companies, basically North American, Japanese, German, Korean, and today, with increasing importance, Chinese.

Based on this first idea, the considerations towards the study in Mexico of the development of value chains are minimal or nil. The role of the automakers and auto parts companies established in Mexico is decided in the intelligence centers that are located in the countries that own the capital of these companies.

Due to this situation, the study of value chains in Mexico should focus on addressing the extent to which changes in the USMCA affect them. A first hypothesis suggests that the changes to the USMCA proposed by the United States, in addition to Trump's perverse political game, which cannot be ignored, are to stop China's advance in the penetration of the country in the automotive industry, from automakers ( JAC) up to auto parts. And, of course, the increasing advancement in the last 25 years of the Japanese, German and Korean automakers and auto parts companies, which have replaced the North American ones in practically all areas of the automotive industry.
The paper will address the progress or changes in the USMCA that may affect the value chains in which Mexico operates.

Full Text:

Gerpisa, 2020

Changes in New Value Chains in North America

The decision to make changes in the value chain architecture in North America, in a similar fashion to how it is in the rest of the world, is made by the Board of Directors of the assembly plants. Today in Mexico there are already 14 companies assembling automobiles in the country: two American companies (GM and Ford); four Japanese (Nissan, Honda, Toyota and Mazda); three German (VW, Audi and BMW); one Korean (Kia-Hyundai); two Italian (Chrysler and Fiat) and one Chinese company (JAC), in a joint venture with Inbursa, which is a Mexican company. We’re not unaware that Audi is one of VW’s 12 brands, and that Chrysler and Fiat are the same company, but in both cases, in Mexico, they have been legally registered as separate firms.

The production of these companies, which favors their country of origin, in Mexico, in 2019, can be seen in the following table:

Table 1
Vehicle production in Mexico, 2019, per country (units)

Production (Units)
1 160 775
1 113 748
624 830
560 141
286 600
4 747
3 750 841


The aforementioned companies have been established in Mexico, taking advantage of the great benefits provided by the Mexican government (huge lands, cheap or given away, excessive tax exemptions, and union control), the very low cost of labor, as well as its high productivity and the proximity to the USA (second market of high global consumption), taking advantage of NAFTA, which allows the entry of duty-free products to this country, among which vehicles and auto parts are included.

President Donald Trump’s threat, in 2017, of eliminating NAFTA in order to find a new agreement, accomplished today with the USMCA, forces us to examine if this new treaty will have significant repercussions, which could modify the entry of vehicles and auto parts to the USA, which could in turn affect the value chain architecture, built in the course of many years and created precisely in light of the advantages provided by NAFTA.

Faced with this fact, we might assume, on one side, that the bargaining strength —in the case of the USMCA— to benefit some or other companies, whether they are assembly plants or auto part companies, would be based on the production of each country. Thus, Japan, which possesses the highest percentage of production, 31%, would have the most weight in the negotiation. However, it is a false dilemma, because Japanese companies established in Mexico, just as those from other countries, export a significant percentage of their production to the USA, and therefore there’s an interest in maintaining the criteria established by NAFTA, especially the entry of duty-free automotive products to the USA, and without the need to change headquarters, this applies to both assembly plants and auto part companies, and having access to the American market in favorable conditions.

With the intention of getting hold of elements to approach a solid reason which explains whether the changes in the USMCA vs. NAFTA will affect automotive companies, assembly plants and auto parts companies established in Mexico, relevant information is presented in the following tables.

Table 2
Production and export of vehicles in Mexico (thousands of units) 2016-2019

3 597
3 932
3 908
3 751
2 767
3 253
3 449
3 334
Exports to the USA
2 020
2 335
2 567
2 642

Source: and Banco de México.

As it can be seen in Table 2, production was increased in 2017 by 9.3%, compared to the previous year; additionally, there was an insignificant decrease in 2018, and in 2019, it went down 4%. The drop in this last year was due to the general fall of the global automotive market. In fact, on a global level, according to information from OICA, the decrease was of 4%, from 95 million 634 thousand vehicles to 91 million 786 thousand units; and making a comparison with other countries, China went down 7.5%, India 12.2%, USA 4% and Japan only 0.5%. Going back to Mexico, in terms of the exports, these decreased 3.4%, due to the same reasons noted above. However, exports to the United States increased 2.9% due to the mixture of more expensive products, essentially cargo trucks.

A first observation, three years after D. Trump’s appearance, shows that up until this moment, there is no significant change in vehicle production and export. Growth continues to be similar to that which has been observed for the past 25 years. That being so, there is no fear that the USMCA will affect the future of commercial relations.

The data in the following table reinforce the perspective of the importance of the agreement to assembly plants and to the signatory countries.

Table 3
Exports and imports of the automotive industry in Mexico (millions of dollars) 2015-2019



Annual variation %
Annual variation %
Trade Balance
Annual variation %
114 493

50 850

63 644

113 316
50 418
126 671 
55 905
70 766
142 177
59 297
82 880
147 757
58 890
88 867
Source: Banco de México.

Except for the small decrease of 1% in year 2016, when Trump hadn’t yet come into office in the USA, there is, in the following three years, a significant increase in exports and in the Balance of the Trade Balance (TB), which reinforces the idea that USMCA’s negotiations, suggested by Trump’s team will be favorable for continuing production in Mexico.

The information contained in these tables makes it clear that the government change in Mexico, in 2018, has not been detrimental to the powerful foreign automotive industry established in Mexico. Speculations about a possible change of direction of a “left-wing administration”, which might attempt to nationalize industries or to stop private investments, have been overcome by the political work of the government power.

If the USMCA, as we have repeatedly suggested, is an agreement between businessmen from the automotive field of the various assembly plants of different countries, that which prevails is the ambition to obtain advantages for some, in detriment of the others. In this case, what D. Trump’s intention suggests about a new agreement, regardless of his perverse electoral management, is that North American assembly plants — GM, Ford, and partially Chrysler — could stop the progress of Japanese, German, Korean, and Chinese manufacturers. It is evident that the growing penetration of Chinese auto parts companies and assembly plants in Latin America is a commercial disadvantage for North American companies, and the use of the USMCA in this sense, cannot be ruled out.

Fundamental changes in the USMCA, regarding the automotive industry, which could possibly affect non North American companies, can be summarized in the new rule of origin, which will enter into force on July 1st, 2020, when it will go from 62.5 percent to 66 percent, whereas the next year it will increase to 69 percentage points, in 2022 it will be 72 percent, and finally, in 2023 it will reach 75 percent.

Numerous studies agree that NAFTA turned out to be highly beneficial to the three signatory countries of the agreement: Mexico, Canada and the USA, and that the changes being presented in the USMCA will turn out to be detrimental to the automotive industry of the three countries. Among these papers, the following stand out:

The impact of trade on the North American auto industry, by Thomas H. Klier, senior economist and research advisor of the Federal Reserve Bank of Chicago, which includes five additional opinions from experts, academics and business owners; the Research Event, titled Forging a New Path in North American Trade and Immigration, from the Federal Reserve Bank of Dallas, which took place in Dallas, Texas, on September 26 and 27, 2019; and where some papers regarding the subject stand out: “NAFTA Supply Chains Are Deeply Integrated”, presented by Alonso de Gortari, from Dartmouth College; “Mexico in the Context of Global Trade Tensions”, whose author is Gabriel Chiquiar, from the Bank of Mexico; and “Economic implications for the U.S. Of a North America without NAFTA or USMCA”, by Kei-Mu Yi, from the University of Houston.

As of the acknowledgment of the aforementioned works, it turns out that NAFTA managed to get a deep integration, not only among these three countries, but global companies from countries such as China, India, Japan, Germany, etcetera, were incorporated. Consequently, undoing the tangle which was so solidly created involves costs not only on the change of geographic locations of production, but also, for example, on the company-union arrangements of every country. In the working paper presented last year, during the colloquium, calculations made by the Center for Automotive Research in July 2018, were shown, in the paper titled “Consumer Impact of Potential U.S. Section 232 Tariffs and Quotas on Imported Automobiles & Automotive Parts”, brought forth by Michael Schultz, Kristin Dziczek, Bernard Swiecki and Yen Chen, and which is reproduced in the following paragraphs:

If the Trump Administration chooses to implement tariffs or quotas on U.S. imports of automobiles and automotive parts, the Center for Automotive Research (CAR) estimates that consumers will see the price of all new vehicles rise by $455 to $6 875 depending on the level of tariff or quota, where the vehicle was assembled, and whether the policy provides exemptions for automotive trade with Canada and Mexico. Higher new car prices will drive some consumers into the used vehicle market where prices will also be higher due to heightened demand and constricted supply –producers cannot make more used vehicles. Higher automotive parts prices are also likely to drive up the price of vehicle maintenance and repair, so even holding on to an existing vehicle will become more expensive. Manufacturers that import vehicles to the U.S. market may choose to no longer offer specific models– which is especially likely for small cars that are offered at lower price points to consumers who cannot afford increased vehicle prices due to tariffs. 
U.S. automotive and automotive parts manufacturers would not benefit from tariff or quota protection since all vehicles produced in the United States rely on imported content and a substantial share of U.S.‐ produced automotive parts and components are exported for assembly in vehicles built in other countries. Over 70 percent of 2017 U.S. auto parts exports were to Canada and Mexico (U.S. International Trade Administration, 2017), so including these two trading partners in the trade action would be particularly harmful to U.S. automotive parts producers. CAR estimates that automotive demand will fall by between 493 600 to 2 million vehicles as a result of the implementation of tariffs or quotas. Declining demand is associated with employment losses ranging from over 82 000 to nearly 750 000 jobs and a $6.4 billion to $62.2 billion decline in U.S. Gross Domestic Product (GDP). 
New vehicle dealerships would also be substantially affected. The United States’ 17 000 new vehicle dealerships provide significant contributions to the U.S. economy. Collectively, these businesses employ more than 1.1 million people, with average annual pay exceeding $57 000 (National Automobile Dealers Association, 2017). CAR analysis indicates that this industry, and the employment and wages it provides, will be severely harmed by the introduction of restrictions on automotive imports. CAR estimates that new vehicle dealership employment declines would range from 28 800 to 117 500 and total dealer revenues could decline between $16.3 billion and $66.5 billion as a result of automobile and automotive parts tariffs and quotas.

With the information provided, it may be suggested, with a good level of certainty, that the USMCA, in terms of the automotive sector, will be implemented not with the signed agreements, but under the terms that the assembly plants and auto part companies can implement, without the changes which can affect their operations significantly. It is possible to insist that the rules of origin be implemented in accordance with the USMCA only to put the brakes on the progress of the non North American companies. It will be a game of strategy for the automotive industry as a whole to continue to grow, in spite of the huge losses that North American companies have had in the market.


  GIS Gerpisa /
  4 Avenue des Sciences, 91190 Gif-sur-Yvette

Copyright© Gerpisa
Concéption Tommaso Pardi
Administration Juan Sebastian Carbonell, Lorenza MonacoGéry Deffontaines

Powered by Drupal, an open source content management system