COVID-19 and the Opportunity for Mexican Manufacturing
The coronavirus pandemic continues to motivate businesses in the United States to seek alternatives to sourcing manufacturing in China. This blog post examines why Mexican manufacturing is and will continue to be the preferred choice.
As countries worldwide act to flatten the epidemiological curve of COVID-19, the opposite of a “flattening” could happen in the post-pandemic global economy. This situation has caused distress in China, the greatest beneficiary of globalization, and a “flat” and borderless economy of the kind that Thomas Friedman described in his 2007 book “The World is Flat.”
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The Rise of China
As of 2010, the United States and China were at parity in the realm of manufacturing, but China quickly surpassed the USA. The Asian country now employs a domestic workforce of about 130 individuals to manufacture and export products that are worth close to $2 billion.
As Chinese manufacturing’s global reach expanded, so did its aspirations of becoming a hegemonic global power. Its pursuit of this goal has not been free of friction. This reality has been demonstrated by the recent tariff war between China and the United States.
The current COVID-19 crisis exposed the vulnerabilities created by the widening trade relationship between the two countries. The United States experienced economic uncertainty due to the extensive or total reliance on China for some critical goods.
Despite the adverse effects of the current crisis, there is an opportunity to build an alternate future. For purely economic and strategic reasons, businesses in North America and Europe should make a concerted effort to create a viable regional alternative to China’s manufacturing monopoly.
Mexican manufacturing as a solution
Mexican manufacturing has many advantages and is optimally positioned to take on a leadership role to seize this opportunity.
With Latin America’s population around 650 million, it is quite possible that Mexican manufacturing will boost the region by employing somewhere between 50 and 100 million workers. On a regional level, Mexico represents an excellent opportunity for young and prosperous middle-class workers. Mexican manufacturing also will bring more workers into the country’s formal economy.
Geography is another crucial advantage that Mexico possesses. Its proximity to the United States and closeness to Canada involve faster and cheaper deliveries, expanded means of transportation, and lower inventory in transit and, therefore, lower overall costs.
Many business leaders are still unaware that manufacturing products in Mexico currently costs approximately 20% less than in China, with similar productivity figures. Also, Mexico provides easy access to essential ports, thus facilitating shipments to European and other trading partners.
It’s not about reinventing the wheel: Mexican manufacturing has a track record of global success. Items produced in the country account for 14% of all US imports. The route for these supply chains is already established and can be expanded as trade between the two countries grows.
The path to greater strategic alignment will require close collaboration between the United States, Mexico, and Canada. This relationship will continue to be developed under the auspices of the United States-Mexico-Canada Free Trade Agreement (USMCA) that the three signatory countries implemented on July 1. 2020.
Mexico will benefit significantly from the facilitation of trade, the eradication of corruption, and the development of a robust middle class. As its economy grows, it will be a priority to invest in necessary infrastructure, just as China did.
For their part, the United States and Canada need to invest in the region, foster new business, and build a true regional alliance.
Although it appears that the COVID-19 pandemic will eventually come to an end, there will likely be similar challenges in the future. This moment in time has forced the United States, in particular, to reconsider its economic relationships. US business people are convinced that Mexican manufacturing can reduce the risks faced by the nation’s economy now more than ever.