Canada and Mexico: Centuries of Crucial Collaboration in U.S. Auto Manufacturing

Neither Mexico nor Canada has any domestic automakers operating within their borders at present. U.S. vehicle manufacturers have depended on workforce contributions from both their northern and southern neighboring regions since the inception of automobile manufacturing in North America.

President Donald Trump's choice on Wednesday to impose a 25% tariff on cars and auto parts coming from outside the country triggers financial concern across the three nations.

Canada and Mexico are crucial for the North American supply chain And maintain connections with automobile producers traceable back to the beginning of the 1900s. These associations stayed robust across the entirety of the 20th century and into the early portion of the 21st. During the period when the car sector plunged into crisis due to the Great Recession, it was not only the federal administration of the U.S. that stepped up to support it. Canada also contributed its share of funds as part of President Barack Obama’s committee which guided General Motors and Chrysler through their bankruptcies.

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K. Venkatesh Prasad, who serves as the senior vice president of research at the Center for Automotive Research, mentioned that contemporary automotive manufacturing in Mexico started with component production prior to the gradual incorporation of complete vehicle assembly.

As we look back over approximately the past two decades, we've seen consistent investment from the Detroit Three in both Canada and Mexico, which isn't surprising," Prasad explained. "These investments have largely been driven by cost considerations and an increasingly complex production process.

In Canada, producers initially focused on systems but quickly moved on to manufacturing vehicles, mostly because of Windsor’s closeness to Detroit.

"Over the past four years, we've observed the same trend, albeit slightly altered in terms of spending allocation. There appears to be greater financial investment directed towards Canada compared to Mexico due to expenditures in electrification," Prasad explained.

Harley Shaiken, a labor specialist and professor emeritus from the University of California, Berkeley, stated that through the latest trade pact—the United States-Mexico-Canada Agreement—Trump sought to correct issues within the 1994 North American Free Trade Agreement which resulted in lost jobs for American manufacturers; this accord was opposed by organizations like the UAW along with various unions.

In 2018, the new pact adopted more stringent wording concerning workers' rights and environmental safeguards compared to NAFTA, according to Shaiken; however, it failed to reduce America’s trade gap with neighboring countries as the president had hoped.

We surpassed a $100 billion trade deficit in 2023, with autos being the primary contributor," Shaiken stated to the Free Press. "While American shareholders are benefiting from this situation, much of these advantages aren't reaching American workers.

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Mexican production origins

Although many things have evolved since the early days of automobile production, the connections binding the Big Three automakers in Detroit to Mexico stretch over a century.

In 1925, Ford Motor Co. established a new entity in Mexico City and constructed its initial assembly facility there. five years later The facility employed 260 workers and initially manufactured five Model T cars daily. Eventually, production was broadened to encompass the Model A, Mercury Cougar, and Ford Mustang models.

An incentive provided by the Mexican government included a 50% reduction in import tariffs for materials, discounted railway transportation fees, and an assurance of non-unionized labor.

General Motors and Chrysler subsequently initiated their operations, with each company beginning vehicle manufacturing in Mexico by 1938.

Japanese invasion and NAFTA

In the 1960s, automotive part production in Mexico thrived due to the establishment of maquiladoras—foreign-owned factories where firms could bring in car components or finished goods without taxes. These untaxed operations aimed at attracting global investments into manufacturing sectors. Meanwhile, nations such as the U.S. and Canada stood to gain access to less expensive labor forces.

During the 1970s and 1980s, the surge of Japanese auto manufacturers led to increased investments in Mexico, as American car companies aimed to move their labor- and cost-heavy manufacturing abroad.

The creation of NAFTA also facilitated smoother movement of merchandise across the continent without duty charges for businesses. The updated treaty signed during Trump’s initial term continues to uphold this arrangement.

Wages in Mexico are significantly lower compared to those in the U.S., with Mexican auto workers earning approximately 10 percent of what their counterparts earn north of the border nowadays. However, as Shaiken pointed out, "In numerous plants across Mexico, I've discovered that worker productivity is actually on par with—or perhaps even surpasses—that in the U.S., and the quality remains quite high," he stated.

Shaiken refers to this phenomenon as "high productivity poverty" — Mexican workers generate valuable outputs but do not receive livable wages.

That impacts American workers since the mix of high productivity coupled with low wages draws investments; consequently, facilities here get shut down only to be established over there," he stated. "Yet, Mexican workers suffer as well. Their automobile factories feature limited parking spaces because employees cannot afford the vehicles they manufacture.

Canadian roots

Trade relations with Canada date back equally as long as those with Mexico; however, the work environments differ significantly due to Canada's robust union presence. These ties were initially established when Henry Ford constructed his initial Canadian automobile facility in 1904, primarily to circumvent the tariffs imposed on goods imported from Canada.

As remnants of carriage manufacturing lingered, a 35% duty on imports into Canada led the Detroit carmaker to establish subsidiaries just across the border, as stated by Dimitry Anastakis, who holds the position of L.R. Wilson and R.J. Currie Chair in Canadian Business History at the University of Toronto.

"It doesn’t make sense to have a Ford Motor plant in Detroit and another one in Windsor due to the tariff barriers," he stated.

This continued up to the 1960s, at which point Canada initiated its own trade conflict with the United States following the advent of the automatic transmission. This innovation led to an influx of domestically produced cars into the Canadian marketplace, thereby evading tariffs. By this time, solely the operations of U.S. firms’ subsidiary factories persisted because of the substantial scale and capital needed for involvement in the automotive sector.

In 1965, the Canada-United States Automotive Products Agreement was implemented, serving as an antecedent to NAFTA by eliminating tariffs between the two countries. the two countries This resulted in heightened automobile production in Canada along with additional employment opportunities. Although the agreement was terminated in 2001, by that time NAFTA had largely taken its place.

Large increase seen in vehicles manufactured in Canada being sold in the U.S.

With tariffs out of the picture, Ford, General Motors, and Chrysler could "streamline" their manufacturing operations across North America, including their plants in Canada. This allowed them to concentrate efforts on the entire continent instead of focusing on individual markets sequentially.

The impacts were quick and significant. In 1963, prior to the implementation of the auto pact, among the 632,000 vehicles manufactured in Canada, only 921 units were shipped to the United States. By 1973, after the auto pact had taken effect, Canada produced 1,589,000 vehicles and sent 1,092,000 of those across the border into the United States.

"In the 1960s and 1970s, the Canadian industry became deeply intertwined with the American industry," Anastakis stated.

Regarding labor, initially, Canada's union movement was an offshoot of the UAW, established in 1937 after a strike at General Motors' facility in Oshawa, Ontario.

Under President Bob White, who led the renowned Canadian Auto Workers, the organization separated from its parent body in 1984 to become an autonomous union. By 2013, this entity had joined forces with several groups to establish Unifor.

"Canada boasts strong labor laws. In several aspects, they surpass those in the U.S.," Shaiken stated.

A lot of positions generated by these accords were advantageous for manual laborers, however, the majority of choices regarding car and component manufacturing remained within the United States.

For over six decades, the automotive sectors in Canada and the U.S. have been interdependent," stated Lana Payne, president of Unifor, in an email release. "In collaboration, we produce top-tier vehicles—cars and trucks—that continue to be admired globally." She added, "The unionized workers in this industry struggled for and achieved exemplary labor contracts which led to quality employment opportunities, enhanced living conditions, and robust community development.

She stated, "The two-way trade in automobile products amounts to roughly $160 billion annually and is almost evenly divided, maintaining nearly perfect equilibrium. By threatening this partnership, as President Trump intends, we risk jeopardizing well-paying, union-supported positions on either side of the boundary. This approach is both rash and perilous."

North American labor counts

Currently, General Motors has approximately 120,000 employees across North America. This includes around 90,000 workers based in the U.S., roughly 23,000 employed in Mexico, and about 6,000 working in Canada.

As per data from Ford Motor Co.'s website for the third quarter of 2024, the company employs around 71,974 people across North America. Among these workers, about 5,480 are based in Canada, with an additional workforce of roughly 7,000 individuals working in Mexico.

Stellantis employs approximately 75,500 people across North America, including around 52,000 in the U.S., roughly 8,600 in Canada, and about 14,900 in Mexico.

Jackie Charniga reports on General Motors for the Freepress. You can contact her at jcharniga@freepress.com.

The article was initially published in the Detroit Free Press. For a hundred years, Canada and Mexico have played crucial roles in United States automobile production.