Uncertainty and division reigns in the United States and Mexico. Whether it is the way Covid-19 has been handled in each country, the polarizing speech of both Presidents, or the reopening of the economy, the two countries boast an alienated population and political environment.
Powerful anti-racism protests, that have further paralyzed cities across the US, erupted this week in response to the death of George Floyd while being arrested by the Minneapolis police. The summer aims to be intense as well, as the US Presidential race will be in full gear. On March 9th, before the Covid-19 mandated quarantine began in Mexico, women put the country on a halt in search of equality. Caravan protests against President Andrés Manuel Lopez Obrador were organized in major cities over the weekend. Certainly, the post-pandemic world does not paint a picture of unity and socialization, but it actually defines new rules where close interaction will be rare. How will the economic relationship between the US and Mexico fare under these circumstances?
As companies aim to transform their business and recover in the new economy, two thoughts will be on their mind: risk management and efficient spending. It is impossible to predict the future, but businesses did learn that operating with a truly diversified supply chain, with primary and secondary suppliers and service providers located in different countries and regions, may save or break a business during unpredictable times. Future virus outbreaks, lack of transparency, border closures, and the growing tension between the US and China, increase the risks for North American businesses operating in China and other Asian countries. As companies search for options to reactivate its operations while managing risk and protecting their investment, Mexico continues to be a suitable option.
Location: lower transportation costs, same time zones, and sharing a border become imperative factors to reduce risk for supply and service under times of uncertainty. Mexican companies have proved to be solid partners for 30 years, earning the trust of countless American businesses.
Cost: On average, Mexican workers earn between 4 and 5 times less than American workers with similar degrees and experience. Given the current circumstances, it is difficult to predict the value of the Mexican Peso, or any currency, at the end of 2020, but most projections have the US Dollar appreciating versus the Mexican Peso in the short and medium-term.
Talent: Graduating more than 130,000 engineers and technicians, Mexico will continue to have the available talent to maintain its position as one of the top manufacturing countries in the world. In addition, the country’s talent has positioned it as an offshoring option for IT services (e.g., support and software development) and other back-office functions like human resources, customer service, and finance.
Collaboration: During the pandemic, important collaboration developments occurred between both nations. First, it was announced that the new USMCA / T-MEC / CUSMA would be implemented, as scheduled, on July 1st. Then we saw how the US and Mexico collaborated to reach an agreement on the OPEC production cuts. Lastly, in an effort to reactivate complete supply chains and even though Mexico is behind the US in the Covid-19 timeline, the countries agreed to align the classification of selected industries as essential.
The location is suitable, the cost is viable, the talent exists and the collaboration between governments has been strong through these turbulent times. The interdependence between both countries is undeniable, Covid-19 simply exacerbated it. Focusing on facilitating doing business across borders has proven to be a vital piece of the Covid-19 economic re-engagement for both countries and should be on the agenda of both governments. Will we use these advantages wisely?
Contrary to the post-pandemic norms that force us to consciously distance from each other physically, or the ideological division in the US and Mexico populations, aiming to rebuild in isolation is not the answer. Unity, within both countries and as a region, must be pursued in the road to recovery of the US and Mexico.
* Alberto Villarreal is founder and managing director at Nepanoa Transformation Advisory.He is also a member of the Young Advisory Council of the U.S.-Mexico Foundation. The U.S.-Mexico Foundation is a binational non-profit organization dedicated to fostering bilateral cooperation and improving the understanding between the United States and Mexico by activating key people in the relationship that once were dormant. Twitter: @usmexicofound