The fruits of the TMEC two years after its implementation are in manufacturing

Two years ago today, the USMCA came into force, a new version of the North American Free Trade Agreement (NAFTA).

NAFTA, signed between Canada, the United States and Mexico in 1992, marked the beginning of intense globalization, a period in which world trade served to integrate economies and countries into a single market.

Like its predecessor, the T-MEC is also at the forefront, ushering in a new era in which regionalization replaces globalization.

It is no longer a question of integrating everyone, but of working with “trusted partners”.

For the government of President Andrés Manuel López Obrador, the bet to boost the economy has always been the T-MEC and the biggest test is in the manufacturing industry.

Despite the pandemic, the demand for industrial space in the country reached a new record in 2020, according to data from the company Grupo Prodensa, which works to facilitate the installation of foreign companies in Mexico.

That record was broken in 2021, when demand reached 3.5 million square meters.

Workers weld parts in the assembly section at Olectra Greentech Ltd's electric bus manufacturing plant. Sumit Dayal (Bloomberg)

"It's a brutal growth, a historical record," says Emilio Cadena, CEO of Prodensa, on the phone from Monterrey, Nuevo León.

Data from the National Council of the Maquiladora Industry (known as Index) show that this year, companies will invest 11,000 million dollars in manufacturing plants, after a similar figure in 2021. Of those, 3,000 million are for

, the new trend in which companies move their factories to countries closer to their market.

“This is our moment,” says Cadena.

First, the covid-19 infections interrupted the production of inputs that many plants in Mexico need to produce what is consumed in the US. Then, the Russian offensive in Ukraine rearranged the geopolitical chess game, generating more incentives for US and Canadian companies move their operations from Asia to the Americas.

In April, during the G7 and G20 Finance Ministers' meetings, US Treasury Secretary Janet Yellen was very clear in her vision of the future of trade, under the new geopolitical paradigms brought about by Russia's attack on Ukraine.

“Ideally, we would have a large group of trusted partners,” the official said.

“In the future, we would trust China less, if China does not demonstrate that adherence to our core values.

This could develop in a wide variety of ways, including trade networks.”

With a new trade agreement just signed and the rules clear, the stage is set for Mexico to host companies that want to leave China.

And something else comes into play, says Cadena.

“This intersects with a phenomenon that happens in the United States, which is the shortage of talent.

Americans call

”.

Millions of workers found a way to work from home in the pandemic and now they don't want to return to the industry.

”Even before, there was already an important trend among young people there who do not want to go to the industry, contrary to what happens in Mexico, where there are many young men and women, who see very good working conditions in export manufacturing. work, you see a lot of social mobility, opportunities, growth.

All these factors make Mexico an important player in this relocation of value chains”, points out the businessman.

Janet Yellen during a press conference at the White House.

Alex Wong (Getty Images)

The export of manufactured products is one of the most powerful engines of the Mexican economy.

According to information from Index, 62% of trade in Mexico is generated by manufacturing companies, which translates into a fifth of formal employment in the country.

In that country, clothing, household products, electronics, medical devices, aerospace parts, cars, auto parts and even cargo transportation are produced.

70% is consumed in the United States and 30% in Europe, says the organization.

From NAFTA to T-MEC

In 2015, Donald Trump made Mexico his favorite target.

After attacking Mexican immigrants in the US, he referred to NAFTA as “the worst trade deal” ever signed by the US. During his administration the treaty was revised and renegotiated on many fronts.

Restrictions were included in the rules of origin to guarantee that the products sold between countries do not contain high inputs from countries not attached to the agreement, such as Asian countries.

An anti-corruption chapter was also included for the first time, designed to generate transparency.

At Trump's insistence, the

clause was designed , which requires the three countries to sit down to review the results between 2025 and 2026 to decide whether they want to continue in the trade bloc or not.

Perhaps the change that has generated the most noise is the mechanism created so that a plant can be directly punished if it is found that they incurred in a violation of labor rights.

Within Mexico, just over 600 companies can be sanctioned under this T-MEC mechanism and the country has already accumulated four requests made by the US. The mechanism is unique.

The T-MEC is the first and only trade agreement that includes it.

President Donald Trump and President Andrés Manuel López Obrador sign a joint statement on the new USMCA agreement in the Rose Garden of the White House on Wednesday, July 08, 2020, in Washington. The Washington Post (The Washington Post via Getty Im)

In its annual report released this week, the International Trade Union Confederation (ITUC) gave the US a lower rating for its "systematic" labor rights violations than Mexico, where they are "regular." .

Index ensures that only 7% of companies in the US have unions, while in Mexico, 13% have an organization of this type.

Energetic politics

Neither US President Joe Biden nor López Obrador have spoken directly about these open processes.

The focus of the commercial relationship between the two countries has been centered on the legislative and operational setback that López Obrador has ordered in the energy sector, which was opened to private initiative during the previous Administration.

López Obrador has asked Congress to pass legislation that would guarantee a state monopoly in the sector and has ordered regulatory bodies not to grant permits to private parties.

Renewable energy generators have been the most affected.

"At least 50% of the companies established in Mexico have global requirements for their carbon footprint," says Cadena.

That the Government cannot guarantee new companies that they will be able to use clean energy is limiting the potential of the T-MEC.

The Santa Catarina Wind Farm, a power plant with eight wind turbines used to produce electricity, is located along Federal Highway 40 in Santa Catarina, Nuevo León.

Gary Coronado (Los Angeles Times via Getty Images)

“The Government is going to have to get its act together in some way to be able to offer this type of energy”, says Cadena, “it is going to have to develop it and we, who are part of this ecosystem, think that it is impossible for the government alone.

It is one of the many reasons why we feel that we have to find a way of collaboration between the private sector and the government”.

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