NAFTA uncertainty nags U.S.-Mexico commerce
Irecently attended the U.S. Department of Commerce organized Discover Global Markets — Advanced Manufacturing Conference held February 16-17 in Scottsdale, Ariz.
The conference brought together commerce officials from Europe, Asia and North America, and companies eager to explore new international markets. When I was invited to the conference, I too was interested in making new contacts in countries where markets are growing and my program’s clients might find new export markets. However, after the November presidential elections, my interest changed from investigating new markets to getting a sense of the Commerce Department under the new Trump administration. My goal was to get an inside track by Commerce officials on where U.S. trade policy was headed. I also wanted to check the pulse of the private sector at the conference.
Very early in the conference, I got the sense that Commerce officials were as unsure as those of us in the private sector as to how much campaign rhetoric on trade would translate into actual policy.
Some Commerce officials clearly felt uncomfortable making comments about policy or the direction of trade under the new administration. One person told me that the officials were told to refrain from speaking to the press, a response that I have never experienced in my 25-year relationship with Commerce.
While Commerce officials and private sector representatives spoke on their experiences in markets stretching from China to Europe, from my conversations, I sensed that the real buzz at the conference was the North American Free Trade Agreement (NAFTA) and the future of the U.S.-Mexico trade relationship. One panel was titled, Hecho en los Estados Unidos (Made in the United States): Opportunities for U.S. Suppliers of Advanced Manufacturing Products & Technology in Mexico.
Panelists included: Roberto Coronado, vice president in charge and senior economist of the Federal Reserve Bank of Dallas, El Paso Branch; Ed Camden, president of Southwest Steel Coil, which has plants in Santa Teresa and in Mission, Texas, that distribute steel coils and perform-slitting operations; and Juan Cardenas, vice president of sales and applications engineering, CAID Industries of Tucson, which builds automated assembly lines for different industries. I have known both Camden and Coronado professionally for several years.
Camden and Cardenas spoke about exporting their products to Mexico and their experiences in that country. A common theme was being committed to establishing your business in Mexico and the value of personal relationships. Both private sector representatives spoke on how the skills of Mexican workers have vastly improved and how much the level of automation has risen in Mexico.
Cardenas stated that he had never experienced the quality of production operators as those he has seen in Mexico, while Camden explained that U.S. potential suppliers should do their homework in the U.S. with the major companies with a presence in Mexico to which they want to sell their products.
Coronado spoke of the importance of the trade relationship with Mexico to the U.S., and explained how about two-thirds of U.S.-Mexico trade is intra-industry, meaning that integrated supply chains set up to manufacture products are located on both sides of the border, particularly for the automotive, consumer electronics, aerospace and medical industries.
U.S. companies supply production inputs equivalent to about 40 cents of every $1 of product manufactured in Mexico, which accounts for billions of U.S. exports. He discussed how all three NAFTA partners have developed supply chains that are synchronized across borders and how all the economies have become tremendously integrated. Just between the U.S. and Mexico, about $1 million of trade occurs every minute of a 24-hour day.
Coronado’s remarks were substantiated by Camden, who calculated that, for every worker his steel company directly employs, three jobs are created upstream in the U.S. These jobs consist of employees at the steel factories where he purchases steel, jobs at logistics companies that haul the steel to him and assist him in exporting it to Mexico, and other general support industries.
Coronado also spoke on how, from an economic and demographic standpoint, Mexico is similar to the U.S. in the 1980s. The Mexican economy is no longer growing at the rates it did in the 1960s and 1970s, and it will have to face lower growth rates, taking into account a labor market standpoint. Mexican policymakers will have to deal with this going forward.
All three panelists were concerned as to what the future holds for the U.S.-Mexico trade relationship. According to Camden, “A full departure from NAFTA by the U.S. would be devastating to our company as 90 percent of our business depends on Mexico.” This would also affect the supply chain jobs that are dependent on his exports. “We are eager to have the rhetoric stop and policy to begin in order to know the rules of the game. We are eager to compete and to succeed,” he stated.
There was general agreement on behalf of the panelists that it is OK to discuss whether NAFTA can be improved. They also agreed the biggest challenge going forward is the uncertainty over the future of NAFTA, and the “wait and see” state that companies are in until the new administration decides which path to follow.
The panel and the conference reiterated that, from a trade and investment standpoint, NAFTA has been very successful for the three North American partners. However, the uncertainty over what policy the Trump administration will adopt is causing uncertainty and distress for U.S. exporters.
As Coronado stated, “Going forward, a lot of discussion will be on what NAFTA will look like and where it will go. If we depart from the premise that the manufacturing sectors are really integrated, a departure from NAFTA would be painful.”