Mexico exported $358 billion worth of goods to the U.S. last year, surpassing China as the nation’s largest trading partner. But many subsidiaries and suppliers of parts or finished goods to U.S. manufacturers remain closed by the order of Mexico’s Health Ministry, limiting the flow of goods back north across the border. So U.S. manufacturers preparing to resume production after a month of lockdowns are returning to work without a reliable supply of parts from plants in Mexico. The supply strains are adding to the uncertainty for manufacturers navigating one of the steepest drops in demand for their products in decades, writes The Wall Street Journal (May 6, 2020).
Mexico’s lockdown covers entire industries that remain in operation in the U.S. or are planning to resume production, including the auto industry. Repairing the frayed supply chains will be an early test for the revised version of a free-trade agreement between the U.S., Mexico and Canada, which is set to take effect in July. The pact, like many trade treaties, lacks standard definitions for essential industries that would remain open during a crisis that affects all three countries such as the coronavirus pandemic.
U.S. companies and some states have been lobbying for Mexican plants near the border to reopen, raising tensions between border towns where manufacturing and trade are tightly linked. Mexican authorities have cited border factories for contributing to higher rates of infection in northern Mexico. Public health authorities there say the trajectory of the pandemic in Mexico is behind the U.S., requiring that more businesses there remain closed. Tijuana, just across the border from San Diego, has been one of Mexico’s most infected areas.
Classroom discussion questions:
- Explain why maquiladoras (see Ch. 2 in your Heizer/Render/Munson text) are important parts of U.S. supply chains.
- Besides coronavirus, what other risks do supply chains face? (Hint: see Table 11.3)