It wasn’t supposed to be like this, but the folks who help U.S. companies set up production in Mexico say they are having a solid year.
Tecma Group has more business than ever in its three decades doing relocation. In just the last few weeks, it helped a maker of cleaning equipment and a packaging company make the move south. Chicago-based Mexico Consulting Associates has three new prospects interested in Mexico. Keith Patridge, who runs McAllen Economic Development Corp., expects at least 12 companies to set up shop in Reynosa alone this year. And another firm, Tacna Services Inc., has assisted two businesses locate in the Baja California area.
President Donald Trump’s vow to scrap or revamp the North American Free Trade Agreement was expected to put a scare into companies considering these kinds of moves. But many are sticking to plans to set up shop in Mexico even if the pact isn’t renewed, according to the experts who help firms relocate and find new plants.
Lots of factors go into the decisions, but these companies have made a simple calculation: Cheap labor in Mexico — as much as a $20,000 saving per worker compared with the U.S. — is enough to offset the higher costs of any tariff imposed by NAFTA’s demise. That math shows how Trump’s America First effort to revive manufacturing faces hurdles.
“If they just wiped out NAFTA and went back to normal trade tariffs, I think that’s manageable,” said Ross Baldwin, Tacna’s CEO.
The latest rounds of talks over the 23-year-old trade treaty ended last week, with Mexico and Canada rejecting hard-line U.S. proposals. Negotiations will resume in November. To be sure, some economists predict a less rosy outcome than do the relocation firms, who have reason to put a gloss on their business. Economists point to studies warning of drastic consequences if the accord is ended — a loss of more than 250,000 jobs in the U.S. and almost 1 million in Mexico.
Many companies may just swallow any added costs because of the wage gap. Plus, Mexico’s labor costs have barely changed over the last couple decades, while China’s — a rival to woo manufacturing jobs — have steadily risen.
“Actually, demand [for relocation] has probably grown slightly and the conditions right now in Mexico are actually pretty good,” said Gene Reilly, chief of the Americas for Prologis, a developer of industrial real estate with operations in Mexico.
Black writes for Bloomberg News.