Honeywell’s Move to Mexico and Trade Implications
Back in the early 1990s, Honeywell, an electronics and aerospace company, was based in Minneapolis. They had numerous employees in the state, and one of their facilities operated in Tijuana, Mexico. During that time, there was a lot of worry about job losses and the debate surrounding expanded free trade between the U.S. and Mexico, especially through NAFTA. It was Paul Wellstone, the then-Senator from Minnesota, who spearheaded a fact-finding trip to Tijuana to delve into the situation regarding jobs in Minnesota.
Wellstone was quite disturbed by what he observed: low wages, outdated homes, pollution, and high living costs. He famously stated in an interview that “NAFTA is extremely important” while stressing the detrimental impact on Minnesota’s quality of life, noting that wages at Honeywell in Mexico were around just $1 per hour.
During his visit, Wellstone also went to a grocery store to highlight that the price of eggs in Tijuana was similar to that in Minneapolis. This further fueled his opposition to NAFTA; he advocated for any trade agreement to prioritize environmental, health, safety, and human rights standards.
Honeywell benefited greatly from relocating to Mexico. By examining financial reports, it’s clear that major banks, led by Citibank, provided a considerable credit line—around $1 billion—to support their operations. Five large lenders, including names like JPMorgan and Bank of America, contributed significantly to this funding, exceeding $478 million combined.
How these banks provided such revolving credit was detailed in Honeywell’s SEC filings, which reported annual interest payments ranging from $265 million to $481 million between 1998 and 2002.
This is a glimpse into how the American economic system has shifted, where labor rights and environmental safeguards have increasingly been compromised over the past three decades. While the financial sector has emerged as a key player, manufacturing companies have often been just the front. It’s a complex dynamic that needs addressing.
The approach taken by the Trump administration, with its generalized tariffs, doesn’t seem to be a viable solution. Instead, these tariffs ought to tie into protecting living standards and labor rights—principles that were vital to America’s economic success post-World War II.
Take, for instance, the situation of Mexican miners. They earn less than 10% of what miners in Minnesota make. Their labor, producing raw materials, is used to create steel and auto parts at a GM factory in Mexico, where workers earn just $25 a day. These products are then imported to the U.S., raising concerns about the fairness in this trade setup.
To truly revitalize American manufacturing, a renegotiation of the US-Mexico-Canada Agreement (USMCA) is crucial. It should impose tariffs on goods from all three countries that don’t align with the highest wage standards in their respective industries. This would discourage companies from exploiting lower wages, like those observed in Mexican auto manufacturing.
A unified North American trading bloc could send a strong signal globally, showing a commitment to counteracting the financialization of the world economy and reducing the incentives to seek out low wage environments with poor regulations. Tariffs can play a key role in leveling the playing field across the three countries.
Currently, Canada has the most equitable labor laws among the three nations. In 2020, the unionization rates were 31.3% in Canada, whereas they were only 12.1% in the U.S. and 10.4% in Mexico. Raising rights and participation for those affected by shifts in production is imperative for informed decision-making.
Moreover, enforcing environmental regulations and human rights standards should go hand in hand with North American tariffs. The USMCA’s enforcement procedures need strengthening to ensure compliance across all supply chains operating in the involved countries.
When NAFTA was passed in 1993, there was noticeable concern among senators regarding job losses across various industries. For example, then-Senator Barbara Boxer spoke about the displacement of 800 jobs from California to Mexico. Wellstone pointed out that international labor, health, safety, and environmental standards were not being assured by the Mexican government, which he considered a failure.
Today, it’s essential for Congress to concentrate on reforming the USMCA as a foundational step towards reshaping global trade. Instead of being fragmented, the U.S., Canada, and Mexico should collaborate to set an example that enhances the living conditions of all involved.
David Foster is a retired district director of United Steelworkers and a visiting scholar at MIT.
