According to Bloomberg:
Nissan has requested tariff reductions from the U.S. for vehicles manufactured in Mexico, arguing that this is crucial to maintaining affordability as average new car prices hover at historic highs.
Christian Meunier, Chairman of Nissan Americas, stated that while Nissan has adjusted production of some models to mitigate the impact of tariffs, it still needs to produce small crossovers such as the Sentra sedan and Kicks SUV in Mexico.
What exactly is the reason?
The conclusion is that Nissan simply cannot produce these entry-level models in the US at the same cost and still needs to take advantage of the lower labor costs in Mexico.
Many well-known automakers consistently encounter tariff barriers when exporting cars to North America or Europe, facing numerous obstacles in automobile import and export. Many car enthusiasts don’t understand why, if factors like trade wars are taken into account, some automakers generally considered to be “on the same side” are also subject to barriers.
In reality, there are never permanent friends or enemies between nations, only permanent interests. Henry John Temple Palmerston’s words from the 19th century remain invaluable. Therefore, barriers exist everywhere for the purpose of protecting the domestic automotive industry, and they will inevitably appear when necessary.
Just as Russia once readily welcomed Chinese-made cars, especially after internationally renowned automakers like Toyota, GM, Volkswagen, and Hyundai-Kia withdrew from the Russian market;
However, as Chinese-exported cars gradually became the mainstay of the Russian market due to their price advantage, even local brands like Lada felt the pressure, adjustments to vehicle scrapping taxes and tariffs followed.
This was a predictable outcome.
Moreover, it’s an almost irreconcilable problem, existing now and likely to continue in the future.
The reason for this lies in the significant difference in labor costs.
Mexico’s labor costs are far lower than those in the United States, and labor costs in some East Asian and Southeast Asian countries are far lower than those in Europe, America, Japan, and South Korea.
Furthermore, the cost of a car inevitably includes labor costs, and this proportion can reach around 15% to 20%, a considerable amount.
Can a labor cost advantage be considered an advantage?
Theoretically, it can be an advantage, but it is also an essential factor in “creating barriers to entry.”
In a country where employees work only 8 hours a day, automobile manufacturing costs are inevitably high; conversely, in a country where employees can work 12 hours or even longer through overtime or other means, labor costs can be significantly reduced.
However, the former cannot require employees to work according to the latter’s methods, thus putting it at a disadvantage in terms of labor costs. If the two were to compete, the former would inevitably lose, but this loss is not shameful; it protects the interests of employees, whether passively or actively, and the outcome is correct.
Therefore, in terms of automobile import and export regulations, theoretically, the average price of the product in the target export market, or the so-called “floor price,” should be adhered to. Prices below this standard constitute dumping.
Dumping deals a fatal blow to the domestic auto industry in the target export market.
After all, consumers only care about the price-performance ratio of cars, and generally don’t care why these cars are cheap.
Ultimately, domestically produced cars will become unsaleable, leading to production cuts and even shutdowns by local automakers, widespread unemployment in the auto industry, and stagnation in the development of the domestic auto industry.
However, the auto industry is a pillar industry or one of the pillar industries of many industrialized countries. So, putting yourself in their shoes, who would allow operations like those of Nissan?
Using cheap labor in Mexico to produce cheap cars and selling them in the US market, causing domestically produced cars in the US to go unsold—only someone with a little alcohol wouldn’t say such a thing.
Labor cost advantage is no longer a core competitive advantage. Over-reliance on this advantage can only support labor-intensive industries.
Hoping to leverage this advantage in the automotive industry is unrealistic. The automotive industry should focus on automated production and high-end technology; it is a capital- and technology-intensive industry, not a labor-intensive one. Attempting to change the classification of the automotive industry will only result in the fragmentation of the global automotive industry and market.
Following the rules is not wrong; the automotive industry should not engage in dumping but rather focus on cooperation.
