Dear Members and Friends:
Hope you are well and staying safe!
We have a number of different topics to cover in this update with a lot of links to recent reports and podcasts.
US-Mexico Relations
On September 16 the US State Department released a fact sheet on “US Relations with Mexico” that covers a number of key areas of interest, including Pandemic Response, Bilateral Economic Issues and the United States-Mexico-Canada Agreement, Migration, US-Mexico Border, US Security Cooperation with Mexico, Educational and Cultural Exchanges, and Mexico’s Membership in International Organizations.
Although some of the data is only for 2020, the fact sheet provides a good summary of items of mutual concern. It follows by about a week the September 9 High-Level Economic Dialogue, or HLED, session—the first since 2016. We covered the HLED in our last Update.
Security and Migration
On October 8 the White House released a fact sheet on US-Mexico High-Level Security Dialogue entitled “The US-Mexico Bicentennial Framework for Security, Public Health, and Safe Communities” that covers three goals:
“Protect Our People” — Public Health, Support Safe Communities, and Homicide and High-Impact Crime Reduction
“Prevent Transborder Crime” — Secure Modes of Travel and Commerce, Reduce Arms Trafficking, Disrupt the Capacity of TCOs and their Illicit Supply Chains, Reduce Human Smuggling and Trafficking
“Pursue Criminal Networks” — Disrupt Illicit Financiers, Strengthen Capacity of Security and Justice Sector Actors to Investigate and Prosecute Organized Crime, and Increase Cooperation on Extraditions.
As the fact sheet presents, Secretary of State Antony Blinken, Secretary of Homeland Security Alejandro Mayorkas, Attorney General Merrick Garland, and Deputy Secretary of Treasury Wally Adeyemo have discussed the bilateral framework and security priorities with Mexican counterparts after meeting with President Andrés Manuel Lopez Obrador. They confirmed that cabinet officials from the United States and Mexico will meet annually to advance implementation of the new framework, while subcabinet officials work toward these goals year-round.
On migration, a matter affecting border security, the liberal-leaning Migration Policy Institute provides global research and policy development on immigration especially regarding Mexico. Following a report by the Border Patrol on migrants crossing the southwest border without authorization, MPI issued a press release, “While Migrant Encounters at the US-Mexico Border in 2021 Were High, They Likely Do Not Set a New Record Level of Migration.” The release, with additional commentary, goes through interesting details on migration trends and concludes that additional work must be done to provide procedural guarantees for protection as well as to deter potential migrants from crossing.
Supply Chain
The Peterson Institute for International Economics released a report in October on “Bringing Supply Chains Back to Mexico: Opportunities and Obstacles.” The report, contributed to by leading scholars and former government officials, sets out the case for a shared Mexican and US interest in building resilient supply chains in North America and prioritizing the economic policies Mexico needs to succeed as a destination for relocated production from China. Each author goes through a lot of detail and analysis in developing their conclusions. In the forward, the editors indicate that “The most promising candidate for large-scale nearshoring is Mexico, due to its geography, existing high level of economic integration with the United States, and participation in the high standards USMCA. Significant concerns remain, they say, about Mexico’s viability as a nearshoring location.” You can draw some conclusions by reading each of the sections.
On the Automotive Industry and Near-Shoring, the Institute for New Economic Thinking put out a working paper on October 5, “Mexico’s Automotive Industry: A Success Story?” The authors summarize, “The paper traces the evolution of the Mexican automotive industry, emphasizing the difficulties faced by a late-comer country in developing an independent industry, and the importance of policy choices as well as the macroeconomic context in affecting its development.”
It runs sort of chronologically, beginning in the “import substitution” era of the 1960s and 1970s, and travels to today’s facilitation of USMCA. Five sections include a lot of data going back to the early 1980s. In looking at “the road ahead,” the authors indicate that “The automotive industry is facing the transition to the production of electric vehicles and autonomous driving; automation, robotics and digitalization; new forms of car ownership and mobility. All these changes have the potential to reshape existing industrial geographies, affecting the relative advantage of integrated peripheries versus semi peripheries and of different regions within and between cores, as leading companies adopt new digital technologies and alter their component supply chains and sourcing practices.” Whether all of this is do-able remains to be seen.
Mexico Energy Policy
Mexican President Lopez Obrador sent the Mexican House of Representatives legislation to amend the Constitution regarding the electric power sector on October 1. This follows amendments made to the Hydrocarbons Law on May 5, which expanded governmental authority over the hydrocarbons sector. The report provided by the law firm of Akin Gump, “Proposed Constitutional Reform in Mexican Power Sector,” details what the legislation would require. The report concludes that “If the proposed amendment is enacted in its current form, it will drastically change the regulatory framework and landscape of the electric power sector in Mexico, with adverse effects on the contractual and constitutional rights of private investors in the industry.”
On October 19, a group of Members of Congress from Texas sent a Letter to US Ambassador Ken Salazar that said, “These steps [of the Mexican government], among others, harm our critical trading partnership with Mexico and potentially violate key tenets of the USMCA.”
US-China Relations
The WTO released their eighth “Trade Policy Review of China,” which is done every three years, on September 15. The report has five sections: Economic Environment, Trade and Investment Regimes, Trade Policies and Practices by Measure, Trade Policies by Sector, and Appendix Tables.
There is a lot of detail in its 206 pages. Following the release of the report, USTR Katherine Tai on October 22 provided a “US Statement on the Trade Policy Review of China.” This followed a statement on the previous day by David Bisbee, Chargé d’Affaires, a.i., Permanent Mission of the United States to the World Trade Organization, on the same subject. Also here is the “Fact Sheet: The Biden-Harris Administration’s New Approach to the US–China Trade Relationship” which was released by the White House on October 5.
US Economic Outlook
Thomasnet released their 2021 Annual Report on the “State of North American Manufacturing.” Of note over the past year is that there was a significant increase in the interest in re-shoring among industrial buyers and that “If four in five US manufacturers bring on one new domestic single-contract supplier, it will inject $443 billion into the US economy.” There was also a sharp rise in the supply-chain demand for a number of industrial sectors.
Economist Intelligence released a report (here), “EIU Risk Outlook 2022: 10 Scenarios That Could Impact Global Growth and Inflation.” Of interest is that four of the ten scenarios involve economic and political issues with China. At the end of the report, EIU’s Risk Briefing rates each scenario according to its probability, impact, and intensity.
US-EU Trade
Good news: At the G20 Summit in Rome, negotiators announced modifications to the existing tariffs on steel and aluminum coming from the EU. The tariffs, which applied to every country except Canada and Mexico, were first introduced in 2018 under the Trump Administration—25% on steel and 10% on aluminum. Although tariffs will remain, a certain amount of steel and aluminum produced in the EU will be able to enter the US tariff-free. Details can be found in the “Joint US-EU Statement on Trade in Steel and Aluminum” and “Announcement of Actions on EU Imports Under Section 232,” both released on October 31.
Before we leave, the latest edition of our Chamber magazine, Alliance, has just been released with articles on key US-Mexico issues by senior Mexican government officials as well as Chamber members. It’s a good read. The electronic version can be found here.
Have a safe and great Thanksgiving!