How are the coronavirus quarantines of factories in Mexico affecting the US economy?
From the production of automobiles and agricultural machinery, to the manufacture of fighter jets, and even in the operation of ATMs: industry in both Mexico and the United States depends upon what is manufactured in each country. Because of this set of circumstances, it is important to know how the quarantines of factories in Mexico are affecting the US economy.
From the end of the global financial crisis of 2010 until the first three months of this year, commercial exchange between Mexico and the United States has flowed freely and uninterruptedly. When the new coronavirus struck and emerged as a pandemic, factories on both sides of the border closed to prevent the spread of the illness among their workers. The coronavirus quarantines of factories in Mexico and the United States had an almost immediate negative affect on trade between the countries, which had totaled US $67 billion in 2019.
A full one-third of the figure for trade registered between Mexico and the US in 2019 corresponded to the production and sale of manufactured goods. Today much of the manufacturing in sectors such as automotive, aerospace, electronics, and metal fabrication has been adversely affected by quarantines of factories in Mexico. Without inputs that are made in Mexico, US industry is experiencing serious difficulties in maintaining its production facilities, as well.
An example of the aforementioned is the American manufacturer, Honeywell’s, plant in Ciudad Juarez, Mexico. This facility produces items for US companies that include the production of fire alarms.
Honeywell CEO, Darius Adamczyk, was one of more than recent 350 signatories to pen a letter that was addressed to Mexican president Andrés Manuel López Obrador. In the communication with López Obrador the executives called for dozens of factories and industrial plants to be designated as being “essential.”
As a counter, the action taken by the company’s chief executive, employees of Honeywell’s plant in Ciudad Juarez protested outside of the factory with signs that expressed that alarms are not essential products and that the health and the lives of workers would be at risk if manufacturing lines were to be opened.
A difference in approaches
While the US government is more prone to view the manufacturing sector as being “essential” (despite health risks) in a broad sense, Mexican policymakers are not of the same opinion. Since Mexico shut down portions of its industrial sector, US manufacturing firms with products as diverse as transportation equipment, electronics, and medical devices have asked Mexico to reopen the plants that supply them.
In addition to US industry, the American military has also been affected adversely. Since the coronavirus quarantines of factories in Mexico began, according to US Undersecretary of Defense, Ellen M. Ward, Mexican produced supplies have been difficult to obtain. In particular, Ward points to difficulties related to obtaining inputs used in the production of US military aircraft. According to Melissa Floca, of the Center for American-Mexico Studies at the University of California at San Diego, for North American manufacturing to work “factories on both side of the border have to be operational and in production.”
Factories in Mexico are at a different stage
Although the US has been one of the countries that has been hardest hit by the coronavirus, each of the nation’s fifty states is at some stage of the process of reopening their economies to business. Mexico, however, has only just recently entered stage 3 of the pandemic, which foresees an accelerated increase in coronavirus cases and deaths. As of May 21, 2020, Mexico has suffered 56,594 recorded cases of the illness. Of this number, 6,090 have been fatal. On a positive note, 38,876 Mexican citizens have recovered from the contagion.
As a result of the current state of affairs at factories in Mexico, President López Obrador has ordered the reduction of activities that are related to industrial production. He recently observed that, “It is unfortunately that the coronavirus is seriously affecting the United States. We too have our health policies.”
Beyond the different stage of economic reopening that the neighboring countries find themselves in, both the US and Mexico have different definitions as to what constitutes an essential activity. While the US Cybersecurity and Infrastructure Security Agency has deemed manufacturing, in general, as being a vitally important and essential activity, Mexico has only recognized companies in industries such as food production and processing and energy as belonging to this category. Firms that are produce intermediate goods or many products for consumption have been categorized as non-essential at this time. This is the case even though members of both the diplomatic and business communities have lobbied the Mexican president to take a different stance on the matter.
The manufacturing community is impatient
Just recently, approximately 350 members of the US National Manufacturers Association addressed a letter to López Obrador calling for the reopening of factories in Mexico.
They communicated that the organization’s membership is “deeply concerned about emergency health decrees that have been made that have resulted in the forced closures of the manufacturing facilities of our companies.” They went on to state that the shut down of manufacturing plants owned and operated in Mexico by US companies would jeopardize their collective ability to “deliver critical supplies and daily essentials to the citizens of Mexico, as well as throughout the entirety of North America.
Organizations in Mexico, such as the Confederation of Industrial Chambers (CONCAMIN), have also called for López Obrador to further open the nation’s economy. They argue that designating manufacturing sectors such as automotive, aerospace and electronics as being non-essential puts them at a risk of losing their contracts and customers. CONCAMIN manager, Eduardo Solis, has stated that current circumstances affect approximately US $30 billion dollars a month in manufactured exports. He stressed that these industries are serviced by intricate global supply chains. The breaking of any of their links affects 100% of the production of factories in Mexico, as well as that of their US counterparts.
Politically, the US ambassador to Mexico, Christopher Landau is taking issue with how Mexico determines which activities are essential which are not. Although he believes that some manufacturing activities are not worth putting people at risk, others such as making semiconductors require deeper consideration. For instance, semiconductors that are produced at factories in Mexico can be used in critical medical devices that consumers depend upon for their continued health.
The US and Mexican economies are intertwined
A full fifty percent of the trade that transpires between the United States and Mexico is in the supply chain. This means that half the commercial exchange between the two nations consists of buying and selling intermediate goods and not finished products. While it is true that there are some end products that can be considered to be essential, intermediate product links in the supply chain that makes them are essential as well. Because of this, it is a great challenge to determine which specific products made in which specific factories are really essential.
Data from the US government Bureau of Economic Analysis gives an idea of how much is at stake in economic terms. In the industrial supplies and materials sector alone, factories in Mexico exported more than US $38 billion worth of products. This figure is dwarfed, however, by the automotive machinery and parts industry which sent almost US $139 billion dollars of its products to buyers in other countries in 2019. In addition to this, the value of exports of consumer goods reached US $39 billion. The sum total of the goods sent oversees by these three sectors of the Mexican manufacturing in 2019 is US $216 billion.
Projections are that the current pandemic will affect all of the world’s economies, but the economic dependence that exists between Mexico and the United States can be a drag on the recovery of both countries. Industry watchers in both nations agree that, if the closure of certain factories in Mexico does not end soon, it will be difficult for US companies to find alternate suppliers of the goods that they receive from Mexican companies.