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Mexico’s manufacturing for export has evolved rapidly in recent decades. From simple assembly and textiles to more sophisticated and skilled processes, the growing Latin American country is now a favored location for export manufacturing. While the five top manufacturing sectors in Mexico dominate the lion’s share of Mexico’s manufacturing activity, the country is also proficient in manufacturing for almost every sector.

Global Export Manufacturing

Due to extensive efforts to modernize and enhance infrastructure, Mexico’s star is rising. In 2021, non-oil exports rose to $31.5 billion USD. Manufactured goods make up 89% of Mexico’s exports. And their #1 trade partner is the United States. However, in addition to trading with other Latin American countries, Mexico also exports significant levels of goods to:

• China
• South Korea
• Canada
• Japan
• United Kingdom 
• Germany

Most of the companies behind the top manufacturing sectors in Mexico are in fact multi-national or foreign companies with global reach. These world leaders in their respective industries leverage the many free-trade agreements and manufacturing advantages Mexico offers to succeed in the highly competitive world economy.

Based throughout Mexico, but primarily in the region along the Mexico-US border, these manufacturing leaders compete with Asia’s labor Europe’s materials to produce world-class products in several key industries. Among these, the top manufacturing sectors in Mexico are included below.

1. Aerospace Sector

Without a doubt, aerospace and aviation is a top-performing sector for Mexican manufacturing. Companies like Lear, Bombardier, Airbus, Delta, and Boeing have well-established manufacturing hubs in the country. Experiencing double-digit growth in most years for the past decade, it’s no surprise that around 300 aerospace companies can be found primarily in the Mexican states of Queretaro, Sonora, Chihuahua, Nuevo Leon, and Baja California. The country boasts numerous OEMs as well as Tier 1, 2, and 3 suppliers in extensive industry clusters.

2. Automotive Sector

Perhaps the most significant of all the top manufacturing sectors in Mexico is their automotive and automotive parts industry. As one of the top 5 producers of automotive parts in the world and the 7th largest producer of automobiles, Mexico is a leading destination for automotive investment. Industry clusters are thick in border states like Baja California, Sonora, and Chihuahua, but run the full length and breadth of the country. Mexico specializes in light vehicles, trucks, buses, parts, as well as other segments. Many notable companies have operations there, including:

• Ford
• BMW
• Aston Martin
• Toyota
• Nissan-Daimler

3. Medical Devices Sector

With industry sales averaging well over $10 billion USD per year, the medical device sector in Mexico is a powerhouse. Primarily based in Baja California, the state’s capital city of Tijuana is considered the medical device manufacturing capital of the world. Mexico is the 7th largest manufacturer of medical devices globally, and accounts for 70% of all Latin American medical device exports. The country exports to 135 countries and is expected to reach an average $15 billion USD in annual exports very soon.

4. Textiles Sector

Mexico’s original chief manufacturing export, textiles and custom sewing still consist of an impressive 20% of Mexico’s manufacturing employment. Although the North American country now competes with European factories for advanced, skilled manufacturing, they have also remained highly competitive in textiles and apparel. Mexican textiles are centered around apparel, but as their technology advances, they are expending into other applications such as automotive textiles and furniture. The export value for this segment now averages more than $7 billion USD per year. The US remains Mexico’s primary export partner for textile products. 

5. Electronics Sector

With 30% of total exports in the electronics category, this remains one of the top manufacturing sectors in Mexico. And electronics manufacturing in Mexico is growing. Just a few statistics that show Mexico’s dominance in this space include the following:

• Over 1,100 electronics companies operating in Mexico
• 100,000+ electronics engineering graduates per year
• Makes one in four electronics sold in the US
• 7.1% revenue growth during the 2020 recession 
• $5 billion USD in average annual industry investment

Regardless of size, industry, or requirements, companies all over the US and around the world are turning to Mexico for reliable production quality, market responsiveness, and lower costs. To learn more about manufacturing in Mexico, contact us for a free consultation. 

Currently, everyone is talking about the US decision to consider a digital form of the dollar. But such a move would have numerous ramifications. We simply must ask the question, how would implementing a digital dollar impact international trade? While advocates are quick to point out several assumed benefits, others caution of secondary consequences and risks. 

Biden’s Executive Order

On March 9th, President Biden signed an executive order calling for the regulation of cryptocurrencies and for research into implementing a digital dollar. The order was not the first time a US digital currency has been considered, but it is the most significant step taken to date by the federal government. 

The Biden administration states that the order was crafted with input from leaders in academia, the crypto industry, and the consumer protection field. In tackling head on the question of a state-sponsored digital currency and its risks and potential benefits, the executive order focuses on six priorities:

• Consumer protection
• Financial stability
• Illicit finance
• Economic competitiveness
• Financial inclusion
• Innovation

The goal is to ensure the current crypto market has sufficient protections for investors and that illicit activities do not use digital currencies as a means to circumnavigate federal regulations. The order calls for input from concerned agencies regarding how to implement a digital dollar as well and what this might entail for the domestic and international markets.

Potential Changes to International Trade

While a digital dollar may change international trade in various ways, experts are not agreed as to whether these changes are all good or bad. There are several key changes a digital dollar could make to international trade:

1. Easier Cross-Border Transactions

Advocates of a digital dollar say it would make cross-border trade more efficient. Currently, these payments typically take 1-5 business days. Human interaction dictates how slowly these transactions currently occur, as the transaction details must be established and verified to prevent fraud and financing terrorism (AML and CTF). Payments made on a decentralized blockchain, however, could be verified in minutes or even seconds.

2. An Alternative Credit for Finance

Many small to medium enterprises (SMEs) simply do not have sufficient credit established to finance international trade. A publicly verified ledger might serve as an alternative source for underwriters to establish creditworthiness for these SMEs to finance import and export loans. However, this opens up potential privacy risks that would need to be established before a digital dollar could reliably service this need.

3. An End-Run Around De-Risking

In countries where high drug crime or terrorism-related activity may occur, de-risking means companies based there do not have access to the same financing options as potential trading partners. We recently saw this in action when the major financial institutions of Russia were banned from the SWIFT financial messaging service over the Ukrainian invasion. Digital currency may serve as an alternative form of transacting business. But if a digital dollar is a central bank digital currency (CBDC) and therefore subject to the same sanctions and regulations as the current dollar, an unregulated digital currency would be necessary.

4. Outdated FDI Regulations

Another way a digital dollar would potentially change international trade is that it might render current FDI (foreign direct investment) regulations obsolete.  For example, the Bilateral Investment Treaty (BIT) does not encompass digital investments. Treaties and regulations would have to be updated to reflect this seismic shift.

5. Preserve or Endanger World Reserve Currency Status

Currently, the US dollar is the world currency reserve. Would international trade be conducted in the digital dollar as it is currently traded in USD? According to a recent Bank of America report, it would. Because this new CBDC would be the liability of the Fed, and not a commercial bank, the digital dollar would remain the reserve currency for the world. 

Yet, this assertion has its skeptics. China is far more advanced in their digital yuan. It would take years for the US to role out a digital dollar, while many millions of Chinese already have digital wallets for their digital yuan. Some experts fear this convenience will soon spread to international commerce and supplant US currency’s status. 

Don’t We Already Have a Digital Dollar?

While the arguments for a digital dollar in regards to international trade focus on the conveniences, expanding banking benefits to the disadvantaged, and reducing risks of illicit activities, there is reason to believe that in all those ways, the dollar already is digital. 

Today, all around the world, dollars are traded in bank computer systems. Large transactions are always wired directly from bank to bank. Even paper checks are just authorizations to move digital dollars from one account to another. 

Formally establishing a digital dollar would only serve to centralize control over these already-digitized dollars. And in so doing, by withdrawing the deposit base in local, commercial banks along with their function of disbursing finances, the US central bank might reduce innovation and introduce more risk into the financing function. 

Additionally, far from bringing the unbanked into the formal banking environment, the likeliness of losing all privacy would further strengthen decentralized and unregulated cryptocurrencies. While the NSA and IRS may thoroughly favor a digital dollar, thus allowing total centralized control and oversight of all transactions, both domestically and internationally, the result might actually be a dethroning of the US dollar as the world currency and a flight to alternatives like Bitcoin. 

In considering the case for a digital dollar and how it might impact international trade, it is important to weigh the risks against the perceived advantages. Would a digital dollar provide additional convenience and security for international markets? Or are convenience and security already provided by a mostly-digital banking system that is trusted globally more for the depth of US financial markets and backing of the US legal system? Would the loss of privacy and total centralization of finance be sufficiently offset by tangible benefits? And if so – just what are they?

For business travelers seeking to visit Mexico, it’s important to understand the different travel regulations and local requirements. While positive test cases may remain high throughout the globe, most of North America has opened up to travel, especially for business travelers.  In spite of the CDC’s advisory against travelling to Mexico, most of the country is on a low-risk status. 

However, risks and regulations differ from state to state, so we will take a closer look to better set expectations for your travel. While current COVID restrictions in Mexico are lenient, overall, there are some areas that require more than others. Among your other considerations for business travel to Mexico, these insights will help you plan your travel.

Mexico’s Traffic Light COVID Monitoring System

Every other week, the Mexican federal government updates their nation-wide COVID monitoring system to provide citizens and foreign travelers guidance about local restrictions and risk of Coronavirus. The system operates on four levels of risk and corresponding restrictions.

• Red is the strictest, representing the highest risk of COVID transmission, and limiting activities only to those deemed “essential” by the federal government.
• Orange is strict, with a high-risk level; hotels and restaurants are open at 50% capacity, supermarkets at 75%, and churches and cinemas are limited to 25%.
• Yellow is low risk, with minimal restrictions; most public spaces and activities are condoned with basic prevention measures.
• Green is fully open with no restrictions.

As of the first week of March of this year, Mexico’s updated map shows approximately half of Mexican states in the green. The economy is fully open in these locations, with virtually no restrictions. The exception is that some cities still require masks or “cubrebocas” in public places. The federal government cited a dramatic drop in COVID positive tests or cases in opening up half of the country to full capacity and setting the other half of Mexican states to yellow. 

Mexico City is one of the areas in the yellow. Most of the northern states along the border with the US are designated in the yellow, except for Tijuana and Baja California, which is in the green. This means that under current COVID restrictions in Mexico, all of Mexico is opened to most activities with minimal restriction.

Mexico’s COVID Restrictions

While much of the world is protesting what many consider draconian lockdowns and vaccine requirements, Mexico has taken a different approach. Mexico has never mandated vaccines for citizens or visitors. While the border with the US was closed to US non-essential travel early on in the crisis, the border was fully reopened last year.

This means truckers have always been permitted to cross back and forth between the US and Mexico. And even during the border closure, business travel was permitted. Now, the border is fully re-opened, even to non-essential travel. 

There is no vaccination requirement or negative test requirement. However, to re-enter the US, all travelers (including US citizens) must show a negative antigen test to return to the US. There is also no quarantine requirement under current COVID restrictions in Mexico. Those experiencing symptoms or having been in high-risk circumstances are encouraged to self-isolate, but there is no mandate. Airports and many resorts perform health screenings or ask quests to fill out a questionnaire. US business travelers may expect freedom of movement similar to pre-pandemic norms.

Domestically, Mexico never mandated the vaccines. There was no effort to encourage children to be vaccinated, but adults were generally vaccinated once or twice. Employers are not allowed to individually mandate vaccinations as a condition for employment. Currently, Mexico has administered approximately 180 million doses of the vaccine, or about 138 doses per 100 people.

Some states and city municipalities require face masks in public places. But generally, there are no requirements under current COVID restrictions in Mexico, since the populace overwhelmingly prefers to wear them voluntarily. In fact, a recent study found Mexico among the most mask-wearing countries in the world, with approximately 88.7% of the people wearing a mask in public. 

A Return to Normal

US professionals who travel to Mexico for business will find that for the most part, Mexico has returned to pre-pandemic norms. The southern part of the nation is almost entirely in the green, and even the yellow states along the northern border with the US are almost entirely opened and restriction-free. 

Baja California and the manufacturing hub in Tijuana are in the green and entirely re-opened. US travelers may cross the border with nothing more than a US passport. There is of course no Visa requirement in the border region. And there are no other requirements under current COVID restrictions in Mexico. Visitors are encouraged to follow basic safety precautions and enjoy the many restaurants, cultural attractions, and social events Mexico has to offer during their stay.

With the effects of the Coronavirus fading, the economic consequences of lockdowns are still playing out – especially in the ongoing shipping container crisis. Supply chains are struggling to recover as backlogs and disruptions continue. The port of Los Angeles is still congested. And international suppliers and manufacturers are adapting to the reality as much as possible. 

The dawn of a new year brought some hope that the shortages and disruptions would come to an end soon. But the data indicates we are in this for the long haul. The world is still clambering for available containers as US consumption remains strong. Yet there are positive indicators. The outlook for 2022 gives reason to believe things may turn around this year. 

How We Got Here

Last fall, the US discovered that the ports of Long Beach and Los Angeles were under significant strain and backing up rapidly. Last December, the supply chain crisis reached critical levels, with over 100 ships drifting in open water, waiting for a berth. With each ship containing nearly 12,000 FEUs (forty-foot-equivalent units) averaging about 58,000 pounds of cargo each, this represented a staggering backlog of historic proportions. 

When most of the world went into lockdown in 2020, the approximately 90% of all international trade that takes place by sea was impacted directly. Port workers were sent home, warehouses were locked up, and borders closed down. 

But as things began to turn around, US consumption strengthened at a much faster pace than global producers could respond. Chinese factories are still under many of the same restrictions they were two years ago. And in US port areas like California, restrictions have been on again off again. Additionally, the US has struggled with a serious labor shortage. 

As a result, US ports were unable to process inbound shipments to satisfy US demand at sufficient rates. Typically, container ships return to Asia loaded down with empty containers to refill. However, these days, they typically return near-empty. The containers sit in the port, yet to be unpacked. As such, there just aren’t enough containers to go around. And this container crisis is not over yet.

The Ports Are Easing

There is some good news, though. The number of container ships in queue off the coast of Southern California is gradually receding somewhat. As of February, 2022, there are about 78 vessels waiting for berth. This is the first sign in several months that the container crisis may be easing rather than worsening. 

However, it should be noted this is still historically high. Typically, ships did not have to wait. But the number is now receding rather than growing. There are a number of theories as to why this may be. Some theorize the Asian lunar New Year lessened manufacturing activity. The holiday historically has meant a reduction in trans-Pacific shipping. But many others point to the improved resiliency of manufacturers in restructuring their supply chains.

Many have opted to ship to the smaller port at Ensenada just across the Mexican border. While the port does not have nearly the capacity of the larger ports to the north, this alternative does relieve some of the pressure and reduce congestion in the supply chain. 

Also, shipments by truck and rail have increased efficiency, leading to reduced loading and unloading times at the port. Containers are becoming more available because they’re being unloaded faster. 

How 2022 May Play Out

Yet no one believes the global supply chain bottleneck is over. In spite of extending working times, diversifying goods suppliers, and shortening delivery routes, around the world, the container crisis is expected to last through most of 2022. This is indicated by data points like the following:

• Shipment time from China to the major European port of Antwerp rose from 68 days in December to 88 days in January.

• Shipment time from China to the vital British port of Felixstowe increased from 81 days in December to 85 days in January.

• Container ships are currently waiting outside California ports an average of 18 days.

• The price for shipping one container from China to the US west coast is still around $26,000 – a 330% increase from a year ago.

There is also the matter of increasing unrest and protest activity blocking international crossings and slowing delivery times. Recently, approximately 50,000 truckers camped out in the streets of Ottawa to protest the cross-border vaccine mandates and ongoing Covid measures by the Canadian government. This trend is spreading through other countries, too, as truckers throughout countries like France, the US, Australia, and other countries cease deliveries to protest government crackdowns and restrictions.

So, while the shipping container crisis may have turned a corner in Southern California, it is likely that further disruptions will continue throughout 2022. By some estimates, there will not be sufficient containers to return shipping volume to regular levels until 2024 or beyond. Taking steps now to restructure supply chains and reduce dependence on trans-oceanic shipping will be the best course for manufacturers.

With trucker protests increasingly in the news, everyone is talking about the cross-border vaccine mandates. But just what are these mandates, and what could their effect be on international trucking and import/export manufacturing? 

Because each country is different, their vaccine mandates are different. Likewise, the way they handle cross-border trucking varies slightly. However, this poses a problem, because Canada, the US, and Mexico comprise one of the most interconnected economic units in the world.  Even a slight interference in international shipments among the three countries could cause significant disruption and shortages for consumers and the international supply chain.

Let’s take a look at the mandates that have become so controversial and discuss what potential impacts and changes might follow.

Canada’s “Freedom Convoy”

In late January of this year, a convoy of Canadian truckers began arriving in the Canadian capital of Ottawa, having started out from Vancouver. This self-labeled “freedom convoy” quickly became the world’s largest convoy in history with over 50,000 trucks and more than 1.5 million people, including many from the United States, congesting the streets of Canada’s capital and demanding an end to the Canadian cross-border vaccine mandate. 

This mass protest, which Canadian Prime Minister Justin Trudeau described as a “small fringe minority,” resulted in the prime minister going into hiding as truckers demanded freedom from vaccine mandates imposed by his regime on all truckers entering the country. 

While the mandate had originally included all inbound truckers, the mandate was modified in the face of mounting pressure on January 12 – prior to the protests – to only apply to foreign residents. Canadian truckers would be allowed to re-enter the country without proof of vaccination. This came as a result of massive opposition, citing potential for significant disruption in the country’s supply chain as well as increased inflation.

By some estimates, the number of Canadian truckers who refused the Covid vaccines may number as high as 20% of the country’s total driver count. But US truckers will still have to be vaccinated to enter Canada. With around two thirds of the $511 billion USD in US-Canada trade being handled by cross-border truckers, the potential damage is considerable, even if only a fraction of drivers say no to the mandates.

The US Mandate

But the Canadian freedom convoy protests have gone viral. There is already a move to organize a similar convoy to Washington DC to protest the US cross-border vaccine mandate. Many US truckers are already parked in Ottawa, Canada. But more could soon be clogging the streets of the US capital, too. The US vaccine mandate strictly bans all cross-border truckers from Mexico and Canada not current on their vaccines. 

While there is no testing for Covid for US-bound truckers, there is a vaccine requirement for all foreign drivers. Following an announcement in October, 2021, the US mandate went into effect in January, 2022, requiring:

• Verbal declaration of vaccine status at the border crossing
• Proof of Covid vaccination approved by the CDC
• A valid WHTI-compliant document (passport, Trusted Traveler card, etc.)
• Any other relevant documents typically requested at a border stop

The way cross-border trucking works in North America, truckers from Mexico and Canada are typically allowed to bring their loads into a border zone with minimal documentation for transfer to US drivers. However, due to the cross-border vaccine mandate in the US, foreign drivers will not be allowed through customs without the above requirements. 

Vaccines in Mexico

Mexico stands out among the three USMCA nations in that there are no universal vaccine mandates, cross-border or otherwise. While Mexico did close the border to all non-essential travel in 2020, the border was re-opened in 2021. And the Latin American country never restricted essential business travel such as trucking. 

Mexico’s handling of vaccines in the past two years has demonstrated a far more laissez-faire approach, with individuals deciding for themselves, and no widespread mandates being enacted. In fact, employers must not discriminate against non-vaccinated workers on the basis of their vaccination status. As such, there is no cross-border vaccine mandate on Mexico’s part. 

Yet, because of the strict US mandate, many Mexican truckers are no longer allowed to cross the border, resulting in a worsening of the supply chain crisis in the US. Drayage shipping is being impacted, shipping times in particular, as unvaccinated Mexican drivers are being forced to drop their loads at the border and then wait for US drivers to become available to pick them up and carry them across.

Impact of Cross-Border Vaccine Mandates in North America

While Mexico has no mandates, and Canada and the US ban only unvaccinated foreigners, the effect is that all three countries are basically limited to cross-border trucking by vaccinated drivers only. Because a sizeable portion of drivers are not comfortable receiving these drugs, each cross-border vaccine mandate has measurable consequences for trade with the other North American countries.

Unvaccinated Canadian drivers may return from the US, but they are not allowed in the US to begin with. Unvaccinated US drivers may return from Canada or Mexico, but they are not allowed in Canada to begin with. Only in Mexico are unvaccinated US drivers allowed to cross the border, but unvaccinated Mexican drivers may not enter the US. 

With border-crossing shipment times increasing and shortages rising over the past two years, these mandates will likely compound the problem into the future, resulting in spiking prices and long-term supply-chain issues. Companies should take steps to secure their supply chain and trucking processes. Consumers should discuss concerns with their elected officials on national policy measures impacting international trade.

Since the enactment of the USMCA free-trade agreement and the subsequent labor reform of 2019, Mexico’s new labor laws have significantly changed. US firms that manufacture in Mexico will want to take note, as they may be facing unique challenges they are not accustomed to. 

There are stiff penalties for non-compliance with these new labor laws, particularly as it pertains to labor unions and collective bargaining agreements. These all stem from an historic renegotiation of international trade in North America combined with a significant push to reform Mexico’s labor laws and elevate conditions for the country’s impoverished. 

The USMCA 

While mostly similar to NAFTA, the USMCA has several key differences. And some of these directly impact labor. For example, in the automotive industry, carmakers can be subject to a 2.5% tariff if their vehicles manufactured in Mexico do not consist of a minimum 40-45% parts made by workers earning at least $16 USD per hour. 

Additionally, the historic trade deal instituted a rapid response mechanism to ensure unions may organize independent of employer involvement or interference. Under this mechanism, any person, union, or organization may file a complaint against a factory in Mexico that exports to the US on behalf of a US company. If the plaintiff believes there was any intimidation or interference by the employer in union activities or organization, the US is compelled to investigate and arbitrate. 

If the investigation reveals any wrongdoing, that factory may suffer severe penalties. In addition to fines, the company manufacturing in Mexico could lose its preferential tariff status in Mexico. The result would be a substantial challenge for their supply chain and bottom line. 

Mexican Labor Reform

When Mexican President Obrador first came into office, it was on a platform that put labor rights front and center. He took on the broken union system directly. Historically, labor unions in Mexico have been a sham prior to these reforms. 

The Confederation of Mexican Workers was created by the ruling PRI party to be a pro-government labor federation. In turn, the federation selectively recognized only pro-government labor unions that were little more than sock puppets for employers. Employer-controlled unions, called “charros,” negotiated bogus protection contracts to keep wages low and suppress criticism. 

With the opportunity afforded by the USMCA mandate, President Obrador pushed through a sweeping labor reform bill that reshaped labor relations and regulations. Under Mexico’s new labor laws (enacted in 2021), outsourcing has been effectively banned. Companies are no longer allowed to use payroll companies, for example, or employee sourcing firms. All workers supporting the corporate mission and purpose will have to be on the company payroll as employees. There are stiff fines and even criminal consequences for violating these new restrictions.

Implementation

These reforms also brought about the establishment of independent labor courts and monitors. These independent boards are in the process of certifying elections and collective bargaining agreements by secret ballot. Mexico’s new labor laws require all labor unions to be autonomous and democratic. 

However, there have been many missed deadlines, and the democratization of Mexico’s labor unions has been problematic at best. The new Independent Mexico Labor Expert Board recently released a report concluding that some 75% of Mexico’s collective bargaining agreements are still sham agreements that did not accurately represent the collective desires of workers. 

The first official complaint under the USMCA rapid response mechanism was filed in mid-2021. This test case involved a complaint against Tridonex, a subsidiary of a US auto parts manufacturer with operations in Matamoros. The US investigated claims that workers were being denied their rights to free association and collective bargaining. In the end, the company reached a settlement that required Tridonex to pay severance and backpay for workers fired from their jobs over the dispute – a result less than satisfactory for many labor activists.

More recently, on February 3, 2022, at a GM plant in northern Mexico, workers held an election to decide between three establishment unions and an independent union. In spite of intimidation and attempts to influence the vote, the workers overwhelmingly elected the independent union to represent them. This was seen as the first real triumph of Mexico’s new labor laws and the beginning of a new era in Mexico.

Compliance Considerations

It’s a new day in Mexican labor relations. These recent reforms and changes mean companies may be exposed to unexpected liability and penalties for non-compliance. The facility-specific rapid response mechanism creates an environment in which companies may find themselves suddenly open to an investigation originating from virtually anyone and requiring action. 

If the investigation finds a violation of labor provisions under USMCA, the goods made at that factory may no longer qualify of preferential tariffs, and additional penalties may be imposed on the manufacturing company. Other considerable financial costs may be incurred in a settlement.

US firms manufacturing in Mexico should take immediate steps to guarantee existing labor agreements currently allow for workers to organize and bargain without interference, reconsider mission and purpose statements to ensure compliance with the outsourcing ban, and carefully review Section 7 of the US National Labor Relations Act, as these same rights now apply in Mexico. 

Business is booming in Mexico, and the demand for Baja California industrial real estate is outpacing supply. The Mexican state has several manufacturing clusters located in a handful of important border cities. Infrastructure and facilities here are highly modern, but finding space is becoming a challenge.

The international manufacturing for export so critical to the state and that has made this region one of the most economically significant for Mexico and North America is growing. These cities boast a large array of warehouses, factories, and state-of-the-art industrial parks. However, almost none of these are vacant at any given time as more and more companies look to nearshore to Mexico.

Baja California Manufacturing

Just south of San Diego, Baja California is a vibrant manufacturing dynamo for heavy-hitting brands in the US, Asia, and Europe. Key industrial hubs currently manufacturing in Baja California include:

• Medical devices
• Electronics
• Solar energy
• Aerospace
• Consumer products
• Molded plastics
• Machines metals
• Automotive

World-leading brands like Daewoo and Honeywell take advantage of premium Baja California industrial real estate to design, fabricate, and assemble their products for global export.  These industrial properties are centralized within several key cities, especially:

• Tijuana
• Tecate
• Ensenada
• Mexicali
• Rosarito Beach

Manufacturing Capacity in Baja’s Cities

Each city in Baja has its own strengths. Rosarito Beach is a small, niche manufacturing community with extremely modern technology and cutting-edge facilities without the crowds. Ensenada on the other hand, is an extremely crowded port city that has served as an alternative to the US port of Long Beach and Los Angeles. 

Mexicali is the capital of Baja California and boasts 23 secure and modern industrial parks with over 100 active maquiladoras. Tecate also has over 100 active maquiladoras located in just three industrial parks. But the city’s large, deeply rooted populace serves as an additional pool of skilled labor for nearby Tijuana.

With over 600 maquiladoras, Tijuana is the crown jewel of Mexican manufacturing and the largest city in Baja California. The city is home to the San Ysidro port of entry, one of the busiest land crossings in the world and the reason Tijuana is known as the Gateway to Mexico. 

Baja California Industrial Real Estate Challenges

All told, Baja California industrial real estate includes nearly 1,000 maquiladoras. Yet only less than 1% of its many industrial facilities are currently vacant. The demand is so high that in Tijuana, rent is currently at $0.50 MX per square foot. 

Many new players in the area are building to suit rather than leasing existing space. However, a new industrial facility can take two years to build, unless the company partners with a Mexican partner who already has connections in place to expedite the process.

Tijuana, especially, has an impressive array of industrial space. But the manufacturing hub simply cannot keep pace with demand. The city currently holds approximately 65 million square feet of industrial real estate inventory in over 45 industrial parks. Approximately 2.5 million square feet of these buildings are Class A and Class B. Rising demand in this city means manufacturers can expect to pay more for real estate and experience higher turnover rates than in many other cities.

Overall, Baja California industrial real estate as of 2020 includes:

• 60 industrial parks
• 23 micro parks
• 8 industrial parks under construction

Most of the facilities constructed in Mexico are highly modern and reflect US standards, even down to handicap accessibility. Class A, B, and C buildings are offered with energy-efficient lighting and fixtures, concrete tilt-up construction, and securely gated perimeters. Most facilities include basic amenities and features like:

• Fire protection systems
• Telephone and high-speed internet infrastructure
• Employee recreational facilities
• Paved parking and sidewalks
• Streetlights
• Sanitary drainage systems

Mexico is committed to investing in infrastructure and expansion of industrial real estate. But with some areas experiencing boom-town-like conditions, Baja California industrial real estate will continue to be in high demand and short supply for the time being. Companies seeking to leverage the benefits of manufacturing in this region are encouraged to plan ahead and seek strategic help.

News of a recent refinery purchase by the government of Mexico underscores the Latin American country’s push for energy independence. While there are many challenges to achieving this, the current presidential administration has made it a top priority. 

Yes, Mexico has abundant energy resources. But harnessing these has not come easy. In order to be able to supply the majority of their demand, they will need to accelerate their capacity and dramatically curtail their dependence on US imports. 

A recent emphasis on infrastructure acquisitions and improvements is a step in the right direction. And the Texas refinery will certainly help. But many remain skeptical that they can pull it off within the target window.

Mexico Purchases Texas Refinery 

Under the direction of President Andres Manuel López, Mexico’s national energy company, Petroleos Mexicanos, has purchased a controlling interest in an oil refinery located in Deer Park, Texas. Pemex, as the company is commonly called, spent $596 million USD on the buy-out in an effort to expand processing capacity. 

Situated on the Houston ship channel, the Deer Park oil refinery will be Pemex’s only major operation outside the country’s borders. Ownership transferred in mid-January, and Mexico hopes this will increase their chances of achieving energy independence by next year. The refinery currently produces 340,000 barrels a day. 

As part of the deal to take over full control of operations at the refinery, Pemex agreed to pay off $1.2 billion USD in debts jointly held by Pemex and Shell. Previously, Shell’s interest in the refinery was 50%. They sold their stake in an unplanned sale after being approached by Pemex last year. In December of 2021, the Mexican government announced that the US Treasury Department had approved the deal.  

The refinery purchase is part of a larger effort Mexico is making to expand their holdings. Mexico is also spending approximately $2.9 billion USD on a coking unit currently being constructed in the state of Hidalgo. Combined with constructing the Dos Bocas refinery in the state of Tabasco to process 340,000 barrels a day, Mexico hopes to achieve an additional refining capacity of 700,000 barrels a day in total. 

Mexico is also investing approximately $10 billion USD into rehabilitating their existing six refineries. This newest refinery purchase could mean Mexico will double their refining capacity over last year. There are also plans to increase capacity at a Veracruz refinery by another 100,000 barrels a day.

Energy Independence Goals

Mexico’s energy independence goals follow a two-pronged approach. They want to both increase domestic production and eliminate foreign exports. Speaking at a press conference at the end of 2021, Mexico Energy Minister Rocío Nahle spoke of a three-year plan. The plan includes reducing exports of crude by 435,000 barrels a day in 2022 and then nearly 100% in 2023 when all of Mexico’s crude could theoretically be refined by Pemex facilities. 

However, there are some serious challenges to Mexico’s plans of energy independence that go beyond this refinery purchase. For one, Mexico’s utilization rate has been around 40% in recent years. The plan rests on achieving 86% utilization across the entire refining system. The Deer Park refinery is hoped to make a huge impact on this average, yet its utilization average is about 80%. 

Mexico also hopes to produce more crude in the near future. But while the country effectively threw its doors open to energy-sector privatization in the previous decade, the Obrador administration essentially shut it back down. Many of the reforms of previous administrations are being undone and opposed by this administration.

Natural Gas Challenges

Additionally, Mexico is heavily reliant on US imports of gas to meet their energy needs. In 2021, US gas imports made up 76% of Mexico’s supply. And this reliance has been growing for years. Overall, Mexico sources approximately 90% of the country’s natural gas from foreign countries. 

This dependance on external sources runs counter to the logic that predicts Mexico will become energy independent in just the next two to three years. Yet Mexico plans to reopen exploration and production at their Lakach deep-water field in the Gulf of Mexico. The field has extensive proven reserves but closed down due to budgetary problems in 2014. 

The three-year plan also includes upgrading and overhauling the Nuevo Pemex and Cactus gas processing centers. Natural gas will feature prominently in Mexico’s efforts to become energy independent. But the Mexico refinery purchase is the rallying point for the overall effort at this time.

The North American manufacturing community has now had over a year to sort out the differences between NAFTA and USMCA. But many are still unsure about exactly how the two free-trade trade agreements differ and what provisions impact them most. 

While most of the terms remain unchanged between the two trade deals, there are several key differences that should be noted. We will cover the most significant differences between NAFTA and USMCA to clarify the new trade deal paradigm. This enhanced understanding will simplify things for manufacturers interested in manufacturing in Mexico or other North American locations. 

The NAFTA Replacement

Giving voice to the frustration of many in the US, then-candidate Donald Trump called NAFTA “the worst trade deal maybe ever signed, anywhere.”  As automation and other factors brought about an historic decrease in US manufacturing jobs at the same time the North American Free Trade Agreement (NAFTA) was implemented, many linked the two in a causal relationship. It seemed that NAFTA had somehow shifted these jobs to Mexico. 

As a result, NAFTA was hugely unpopular since it’s implementation in 1993. Major political leaders from both sides of the aisle in the US decried the deal. Trump made replacing it a central plank in his campaign platform. And in the summer of 2020, his renegotiation of the deal with Mexico and Canada went into effect. 

Called the United States-Mexico-Canada Free-Trade Agreement (or USMCA), the new version looks a lot like the old one. However, the Trump administration argued it patched up a lot of holes that gave the US the short end of the proverbial stick in international trade. Progressives in the US pledged it will also protect labor in all three signatory countries.

Below are the primary differences between NAFTA and USMCA that international manufacturers should be aware of.

Key Differences with the New USMCA

• Automotive Industry rules have changed. The automotive industry was probably the primary industry affected by the USMCA. Now, country-of-origin rules have changed. In order for automobiles to enjoy tariff-free status, at least 75% of their parts must come from North America. NAFTA previously required 62.5%. 

The hope is this will increase North American jobs by decreasing reliance on inputs from South Korea, Japan, Germany, and other parts-supplying countries. Vehicles that do not meet this higher ratio are subject to a 2.5% tariff. However, this change may result in higher automobile costs for consumers. 

• Labor rules have changed. Under the USMCA, 40-45% of an automobile’s parts must be manufactured by workers making at least $16/hour by next year to avoid tariffs on that unit.
  

Likewise, Mexico is required to pass more labor-friendly laws, making it easier for workers to unionize. A key change in the USMCA version debated in the US Congress was to create an enforcement panel of multinational exports to ensure labor protections in Mexico. Currently, Mexico has the lowest wages in North America by far.

• Canada’s dairy market was opened. Now, US farmers have increased access to Canada’s dairy market. All three countries, under both NAFTA and USMCA, enjoy 0% tariffs on agricultural goods. 
• Digital and Intellectual property protections have been extended. Under NAFTA, copyright protections lasted until 50 years after the author’s life. This has been extended to 70 years.
  Additionally, the USMCA prohibited duties on digital products like ebooks and music, even offering protection against lawsuits for US-based internet companies for content on their platforms. 
• Certification of Origin has been simplified. Under NAFTA, companies were required to complete a formal certificate of origin. However, this may now be satisfied through informal means, such as commercial invoices or other documentation.
  
• The De Minimis threshold was increased. The minimum threshold for duty-free imports has been increased to $150 USD (up from $20) for imports into Canada and $100 (up from $50) for imports into Mexico. This will especially impact retailers importing low-value goods.
• There is now a Sunset provision. One of the key differences between NAFTA and USMCA is the sunset provision that causes the agreement to expire 16 years after it was implemented (2036). It also requires a review of the trade deal every six years to amend or re-authorize the agreement to ensure no issues are overlooked.

Expectations are that the USMCA will create more jobs for the US, Mexico, and Canada, and increase worker protections. Mexico already has more FTAs (free trade agreements) than any other country. And this reworking of NAFTA is viewed positively as a net gain for the Latin American country and US or Canadian firms operating there.