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The USMCA: creating a new path for global supply chains in a post-pandemic world

The USMCA: creating a new path for global supply chains in a post-pandemic world

Stabilizing and meeting the needs of increasingly complex global supply chains is critical given today’s challenging economic landscape.

The current worldwide health crisis that is affecting all nations has created an unprecedented challenge: stabilizing and meeting the needs of global supply chains. In addition to this, the world’s hyper dependence on China as a source of manufactured goods has become clear.  This has highlighted the need to diversify the physical location of production plants and distribution centers.

Manufacturers in the United States, for example, should consider whether the present is the optimal time to implement plans for relocation to and procurement of services from the NAFTA region. In the case of Mexico, it is a crucial country in the network of North American supply chains.  Moving global supply chains to Mexico can help to mitigate the negative effects that the health emergency has promulgated.

One of Mexico’s principal attractions for industry is its qualified and competitive workforce.  Additionally, its geographical location and the fourteen free trade agreements with 50 different countries around the world, including the USMCA, are among the benefits enjoyed by companies that establish facilities in Mexico. These free trade agreements further insert Mexico into global supply chains because they give the country access to over 60% of global GDP.

In addition to the above, the trade and tariff uncertainties that currently exist between China and the United States have heightened the Asian country’s interest in increasing its manufacturing investment in Mexico to shore up its global supply chains.   This will enable companies that are headquartered in China to continue to supply their products to the US market duty-free.

Due to current circumstances, negotiations between the United States and China have been slow.  In recent months, diplomatic friction has increased, and the first-stage trade agreement that the two countries have reached has been stalled. This has given Mexico a notable advantage in its move towards capitalizing on the presence of a well-developed industrial infrastructure that can offer Chinese manufacturers the choice between a wide variety of locales in which to establish themselves.

China is Mexico’s second-largest trading partner after the United States.  As a point of reference, foreign direct investment (FDI) by the Asian country around the world has increased more than 50 times over the past two decades and has reached US $1.5 trillion. Thus far, Latin America has managed to attract only a small portion of this total.

Today it is estimated by some economists that China could potentially be the source of 75% of the world’s total FDI in the next 10 years. Today it is one of the few countries with positive Gross Domestic Product growth.

The magnitude of China’s economy, its position in global supply chains, along with its infrastructure and investment plans, will have a direct impact on the world’s economic performance for the foreseeable future.  In the Latin American region, only Mexico and Brazil have the infrastructure that is capable of supporting Chinese investment in the manufacturing sector.  Servicing foreign markets from these two countries is in line with China’s overall strategic policy prioritizing the expansion of its central presence in global supply chains.

Mexico must focus its energies on providing certainty to foreign investment and strengthening its trade relations with the Asian country to take advantage of an installed capacity of the 500 industrial parks that stand at the ready to receive an influx of Chinese companies.  A large percentage of these industrial parks are located in high-profile export states such as Baja California, Chihuahua, Nuevo León, Coahuila, Sonora, Tamaulipas, Guanajuato, Aguascalientes, Queretaro, and Puebla.

In this sense, the Tecma Group of Companies has positioned itself as one of the nation’s premier providers of Mexican shelter service providers.   With more than three decades of experience, Tecma has operations in several of the locations that are most relevant to manufacturing and logistics operations.  Included among them are Ciudad Juarez, Chihuahua; Tijuana, Baja California; Torreon, Coahuila; and the cities of Leon and Silao in the state of Guanajuato.

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This quarterly publication will be populated with content that is useful and relevant to readers that are contemplating Mexico investments, have operations already within the Republic, as well as to other individuals that have an interest in Mexico and its manufacturing sector.

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