Dear Members and Friends:
Hope you are well and staying safe!
As we transition to a new year, many of the topics and issues we faced in 2021 will continue to follow us to 2022. We will continue to keep all of you informed with news as we receive it.
US Relations with Mexico
The biggest occasion in the month of November was the meeting of the Three Amigos in DC on November 18: President Biden, President Lopez Obrador, and Prime Minister Trudeau. It was the first such meeting in five years.
President Lopez Obrador, President Biden, and Prime Minister Trudeau.
According to the White House, the meetings “will reaffirm their strong ties and integration while also charting a new path for collaboration on ending the Covid-19 pandemic and advancing health security; competitiveness and equitable growth, to include climate change; and a regional vision for migration.” However, aside from the “niceties” of the sessions, the question remains whether the three individuals and the three countries will be able, in the coming months and years, to tackle and solve the problems of migration, border management, and protectionism.
The first North American Leaders Summit was hosted by George W. Bush at Waco in 2005 with Canada’s Paul Martin and Mexico’s Vincente Fox. Many efforts, some successful and some not, have been tried since. Is there a true desire, with detailed policies, plans, and programs, for the countries to achieve a “trilateral industrial policy” together? We will see! A Fact Sheet released by the White House, “Key Deliverables for the 2021 North American Leaders’ Summit,” and the verbatim opening remarks by the leaders, “Remarks by President Biden, Prime Minister Trudeau of Canada, and President López Obrador of Mexico Before North American Leaders’ Summit,” are linked here.
At the same time as the Summit, El Financero published a national survey of the opinions of Mexicans of the relationship between the two countries. The details are in a brief article released by the Mexico Institute, “Most Mexicans perceive a positive U.S.-Mexico relationship,” on November 23. The November data shows that 64% of respondents think that relations between Mexico and the US are good or very good, as opposed to 18% who think that they are bad or very bad. The September poll recorded 65% positive opinion; these are the two highest marks on the perceived bilateral relationship since February 2019.
The favorable opinion about the bilateral relationship was much lower, 33% in February 2019 and 20% in June of that year, with Donald Trump still in the White House. With Joe Biden in the presidency, the relationship has been perceived with ups and downs, but favorable opinions have generally been more numerous.
US-Mexico Chamber
During the celebration of the Annual Board of Directors Meeting in Washington on October 20, the President and CEO of the Chamber, Albert Zapanta, and the President of the Mexican Association of Secretaries of Economic Development (Asociación Mexicana de Secretarios de Desarrollo Económico-AMSDE), and Secretary of Economic Development of the State of Coahuila, Ing. Jaime Guerra, signed a “Memorandum of Understanding” to promote the development of binational economic activity and recognize that trade and investment relations between Mexico and the United States are vital to promoting the economic development of both countries.
Among the goals of the relationship are to exchange periodic information on the supply and demand of goods, services, and investments in both countries to benefit producers, exporters, and/or investors; and to disseminate information and promote the results of research and analysis of public policies on trade and investment relations between Mexico and the United States.
US Relations with China
January 15 will mark the second anniversary of the establishment of Phase One trade agreement between the US and China. On the initial date the White House released a Fact Sheet entitled “Economic and Trade Agreement Between the United States of America and the People’s Republic of China.” The agreement itself is attached here. There were seven chapters to the agreement: Intellectual Property; Technology Transfer; Agriculture; Financial Services; Currency; Expanding Trade; and Dispute Settlement. This past year has not seen movement forward on the agreement from an economic perspective with growing state control over the private sector and economy more generally in China, and a shift to a more socialist direction with its new “Shared Prosperity” policy.
MarshMcLennan covers a number of these concerns in an article, “Where Is the US-China Relationship Heading in 2022?” As a response to China’s more aggressive economic and foreign policy, President Biden has focused on multilateralism, something not popular with his predecessor. New initiatives such as AUKUS (Australia, United Kingdom, and the United States) and “the Quad” (Australia, India, Japan, and the United States) have sought to jointly promote free and open trade and rules-based order for the Indo-Pacific region. However, on the negative side, there is no likelihood of the US rejoining the Comprehensive, Progressive Trans-Pacific Partnership or the new Regional Comprehensive Economic Partnership – of which China is a member.
Lastly, the U.S.-China Economic and Security Review Commission has released its “2021 Report to Congress.” The 551-page report has several major chapters: US-China Global Competition; US-China Economic and Trade Relations; US-China Security, Politics, and Foreign Affairs; A Dangerous Period for Cross-Strait Deterrence: Chinese Military Capabilities and Decision-Making for a War over Taiwan; and Hong Kong’s Government Embraces Authoritarianism. Each chapter has key findings, and the report ends with 32 very detailed recommendations organized by chapters.
The tenor of the report is dominated by the following words from the Executive Summary:
“China’s leadership is increasingly uninterested in compromise and willing to engage in destabilizing and aggressive actions in its efforts to insulate itself from perceived threats or to press perceived advantages. As Beijing views itself facing a more adversarial international environment, its attempts to impede political and economic coordination between the United States and other democracies will likely intensify.”
Supply Chain Outlook
On supply chain, we start with a link provided by our Chamber’s strategic partner in Washington, Manchester Associates. Certainly supply-chain issues have been exacerbated by the lack on the supply side of semiconductor chips, especially affecting the auto industry, among others. A recent article in the International Business Times, “The Semiconductor Shortage Is an Opportunity to Create a Win-Win Situation for Mexico and US,” brings up some interesting possibilities:
“In the most adverse scenario, the lack of semiconductors would cause a decline of 2.16 [percent] in the participation of secondary activities in GDP; 3.57 [percent] in the case of manufactures; and 10.9 [percent] in the manufacture of transportation equipment where the automotive industry is located. Despite being the seventh largest car manufacturer and the fifth largest auto parts producer in the world, the production in Mexico is the lowest it has been in a decade, and Mexican manufacturers stopped producing 493,410 vehicles from January to October 2021.”
One solution, in planning for the future, would be to relocate more semiconductor manufacturing to Mexico, either the Baja California region or the southern states where more water is available, a key ingredient in semiconductor manufacturing. Mexico and the United States agreed at the HLED to create bilateral working groups on supply chains for semiconductors, as well as on medical devices and pharmaceuticals, according to Tatiana Clouthier, Secretary of Economy. Preliminary reports are due soon. In a recent article of news, Keith Patridge, CEO of the McAllen Economic Development Council, indicated that “MEDC will soon be welcoming a microchip manufacturer to the RGV [Rio Grande Valley].” This would include a 90-acre campus in the McAllen, Texas, area.
Also, thanks again to Manchester Associates, we have a report from the Council on Foreign Relations on “What Happened to Supply Chains in 2021?” Although with our recent reporting it might be easy to answer this question, the CFR brings up many of the details and focused part of their analysis on semiconductors. The other keys to the ongoing problem include pent-up demand, soaring shipping costs, and growing cargo wait times. There have, however, been several policy initiatives, including providing Department of Energy loans for battery manufacturing, upgrading US port infrastructure, improving roads and bridges, improving data sharing and freight planning, and operating the Port of Los Angeles 24/7. Also important will be the “CHIPS for America Act,” which will provide $50 billion to support chip development in the US. The Act was passed by the Senate but is stalled in the House.
However, Foreign Affairs points out that alterations to the industrial policy in the US could be counterproductive in their piece, “Why the Supply Chain Slowdown Will Persist.” Some of these policy changes, including tariffs between the US and China, affected supply chains especially in the semiconductor industry. They conclude that governments should be sparing in their use of industrial policies and more broad-based in their economic interventions such as funding basic research and development and setting global standards that define the basics of industrial processes, protocols, and products.
Our last report on supply chain by McKinsey covers another element, “Navigating the labor mismatch in US logistics and supply chains.” The contention is that
“… the recovery has seen an unusual reduction in labor force participation and that jobs are available—the job-openings rate is around 50 percent above pre-pandemic levels—but the workforce to fill them has contracted. About four million people have left the civilian workforce and, with demand for workers exceeding supply, the cost of labor has increased accordingly. Despite wage increases, logistics operations are still having difficulty hiring and retaining frontline workers, while also seeing increased absenteeism, causing knock-on effects across the supply chain.”
The authors indicate that the mismatch is unlikely to dissipate quickly but that companies are taking steps to address the imbalance. Some of these are ensuring viability of the supplier base; creating capability to identify the stressed nodes and adjust labor flows; reducing complexity and labor content of products and services; and exploring lean management and automation.
COVID-19
Although much of the news today is dominated by COVID, the Albright Stonebridge Group (ASG) has been releasing timely information on the COVID impact in different regions in the world from both a medical and an economic standpoint. The report, “ASG Update: Covid-19 Global Progression and Response,” was released just two weeks ago but, as we have seen, the transmission of the omicron variant has increased dramatically since then. The Chief Medical Officer of ASG ends his introductory letter to the report with the words “With increased global vaccination rates, new medications, and stronger pandemic surveillance, we may finally see the arc of the pandemic bend in 2022.” Hopefully!