Though talk of clean energy and semiconductor supply chains dominated discussions between Biden, Canadian Prime Minister Justin Trudeau and Mexican President Andrés Manuel López Obrador at the North American Leaders Summit held Jan. 9-10 in Mexico City, the event highlighted why companies in the U.S. should consider putting some of their eggs in a south-of-the-border basket.
“The U.S.-Mexican effort to encourage American businesses to move manufacturing operations to Mexico needs to be shifted into high gear,” said Jorge Gonzales Henrichsen, co-CEO of The Nearshore Company, a Brownsville, Texas firm helping businesses manufacture closer to their U.S. end market.
“It’s encouraging that this is on the summit’s agenda, but if many of the ideas are left on the proverbial table, or are slow to be implemented, which has happened in the past, it further puts both the U.S. and Mexico at unnecessary economic risk,” he added.
Considering everything that’s happened since the pandemic erupted roughly three years ago, diversifying supply chains away from their traditional overreliance on Asia is more “critical” than ever, Henrichsen pointed out.
“Developing more resilient supply chains is critical because if the pandemic taught us anything, it’s that supplies coming from Asia are a good recipe for economic and even medical disaster,” he said, urging business to “decouple” from China. “This will serve the interests of businesses and consumers in both the U.S. and Mexico.”
For American Apparel and Footwear Association president and CEO Steve Lamar, Biden’s border trip highlights the importance of forging “smart trade policies” with continental allies.
“One of [the fashion] industry’s top priorities is to remind the administration and Congress that smart trade policies not only support the American economy, but the economies of our neighbor countries,” he said. “Smart trade policies can stem migration of people from south of Mexico, through Mexico, looking for work and opportunity by giving them safe and responsible economic opportunities at home.”
Though businesses continue to mull Mexico as a sourcing option away from Asia after years marked by shipping delays and production shutdowns, Henrichsen believes America’s southern neighbor must to more to make itself more attractive to foreign investment.
“Much shorter supply chains, low cost labor, respect for intellectual property rights, and USMCA free trade pact-associated benefits are all great reasons to move operations to Mexico, but we need both countries to offer more to get businesses to move operations close to home,” he said, calling on Mexico to enhance its energy policies and “do whatever it takes to ensure that states have enough energy to support companies looking to relocate.”
What’s more, he called on both the U.S. and Mexico to abandon their “protectionist” attitudes for the sake of shared economic prosperity.
“The Biden administration’s tendency to be highly protectionist in its investments must shift, and Mexico must offer a better defined legal framework for foreign companies investing in Mexico,” Henrichsen said. “In the end, a steadfast and quick implementation of the USMCA is crucial. Current circumstances are not granting North America time to continue arguing over such issues. Action must be fast; action must be now.”
The nearshoring expert pointed to data suggesting pent-up demand among companies with concrete interest in pulling business out of Asia.
“The Mexican Economy Minister’s office recently identified more than 400 companies that intend to relocate from Asia to Mexico, but there are thousands more that will be convinced to do so, if only our governments would act appropriately,” he said.