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The USMCA will spur the recovery of manufacturing in Baja California

The USMCA will spur the recovery of manufacturing in Baja California

A post-pandemic resurgence of manufacturing in Baja California may be powered by Chinese investors that will increasingly have the need to have operations close to the United States.

The Mexican Secretary of Sustainable Economy and Tourism (SEST), Mario Escobedo Carnigan, recently noted that the newly implemented trade treaty between the United States, Canada, and Mexico (USMCA) will play a significant and positive role in bringing about a rapid post-coronavirus recovery of manufacturing in Baja California.  This is due mainly to the Mexican state’s proximity to the United States in both geographical and economic terms.

Escobedo Carnigan also went on to note that “The economy of Baja California has greatly benefited from the close economic relationship that exists with Mexico’s two North American partners.  Because we have lived under conditions of free trade since the 1990s, we know how to successfully compete.”

The area with which Baja California competes directly for investment, in many instances, is the US state of California.  Although the competition in this relationship arises as a result of the proximity of the two entities, great opportunities for cross-border cooperation also exist.  This because of productive and close business ties that have been forged by people on both sides of the international boundary over a number of decades.

It is of great importance to recognize that the new United States – Mexico- Canada Free Trade Agreement has generated an environment of certainty for both the government and investors that are already manufacturing in Baja California, as well as for others that have an active interest in bringing new projects to the state.

One of the main adjustments that must now be made by the companies that are manufacturing in Baja California in the automotive sector, in particular, has to do with new rules of origin that have been enacted.  Under the phased-out NAFTA, 62.5% of the final value of an automobile had to be derived from North American inputs.  With the recent implementation of the USMCA, this figure has risen to a full 75%.  Additionally, it is now required that 40-45 percent of the content of vehicles in North America be made by workers that earn a minimum of US $16 per hour.   Under the new trade deal, Mexico has made a commitment to raise worker wages in order to demonstrate that it is the high quality of the Mexican workforce that makes the nation economically competitive.

Chinese investor interest in Baja California will increase

Under current circumstances related to global trade and commerce, one of the most prominent opportunities to increase manufacturing in Baja California is due to the need for Chinese investors to set up facilities in proximity to their customers in the United States. Baja California economic development officials such as Mario Escobedo Carnigan believe that the state is the ideal choice for businesses migrating to the Americas from the Far East.  In addition to a skilled and highly effective workforce, Baja California shares a border with the fifth largest economy in the world.

“Those that are manufacturing in Baja California are privileged because they are operating in one of the top industrial centers in the world and have preferential access to international markets,” he stressed.  These are significant benefits that are available for businesses that choose to maintain operations in the state.

In addition to manufacturing, investors from both the United States and China, as well as those from other parts of the world, have an interest in making investments in Baja California in areas such as tourism and infrastructure projects.

Finally, the Secretary of Sustainable Economy and Tourism has indicated that economic and trade analysts project that Mexico will take two years to fully recover from the global Covid-19 pandemic, but for Baja, California conditions are projected to be different.  He is of the opinion that manufacturing in Baja California will be the engine that revives that economy of the entire Northwest region of the country.

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