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When it comes to the scourge of the global COVID-19 pandemic, not even the world’s most robust trade partnerships are immune. 2019 was a banner year for U.S.-Mexico trade as the two countries exchanged nearly $700 billion in goods and services. Last year also saw Mexico become the U.S.’s largest commercial partner, topping Canada and China.
Yet within just a matter of weeks, massive supply chain disruptions have thrown sand in the gears of one of the most robust bilateral economic relationships in the world and threatened millions of American and Mexican jobs. One aspect of the unfolding crisis stems from the disparate approaches taken by the two countries in attempting to balance “social-distancing” measures with the necessity of preserving basic economic functions. The key disconnect comes as a result of several key sectors designated as “essential” functions or services under the Cybersecurity and Infrastructure Security Agency (CISA) guidance in the U.S. being deemed “non-essential” in Mexico.
It’s not a challenge unique to Mexico or the U.S. as governments around the world struggle to strike the right balance on these issues. But the sheer magnitude, success, and importance of the U.S.-Mexico trade relationship makes the stakes much higher than the average commercial partnership. Misaligned policy in the short-term is likely to produce serious long-term consequences at a time when the two countries need each other more than ever.
As of this writing, major supply chain dislocations are plaguing key bilateral industries such as automotive, defense/aerospace, electronics, personal care products and semiconductors. These sectors have been deemed “essential” operators in the U.S. but have seen their operations or those of key suppliers shut down in Mexico. Even after receiving “essential services” designation in the U.S. and Mexico, U.S. Chamber members in sectors as critical to basic economic function as agriculture/food production and supply are facing cessation of operations in both countries because of their dependence on key suppliers in Mexico that have been shuttered after being deemed “non-essential.”
The Mexican economy, already facing stagnant growth before the pandemic, is now expected to see GDP contract sharply in 2020. Thus, Mexican policymakers needing to prioritize the immediate health and safety of the populace must simultaneously ensure the economy is positioned for long-term recovery. A successful emergence from the crisis will protect jobs and ensure the well-being of workers and communities in the long-run. However, the U.S. Chamber is hearing from companies across diverse sectors that will be conducting thorough reviews of supply chain reliability in the crisis’ aftermath. Unless closer alignment is achieved between the U.S. and Mexico on these issues, the threat of broad long-term supply chain dislocation in Mexico looms. For U.S. sectors such as defense, the strategic imperative of reliable supply will dictate relocation from Mexico, while any similar adjustment by the automotive industry – which alone accounts for nearly one million Mexican jobs and 4% of GDP – could result in high levels of unemployment long after the crisis has passed.
The urgency of this situation should not be lost on U.S. policymakers either. When Congress and the Administration moved boldly to support small- and medium-sized businesses through the CARES Act, they likely didn’t account for the numerous U.S. SMEs deemed “essential” that had planned on continuing operations through the crisis but are now crippled by their inability to obtain critical inputs from Mexico. The Overly Door Company of Greensburg, PA is just such a business. Instead of keeping up with previously robust demand for the company’s fortified security doors, Overly President Jon Reese is left explaining to customers why their orders can’t be filled and is forced to consider what the company’s organizational structure will look like if the situation persists.
Some policymakers have called for a detailed analysis of shared U.S.-Mexico value chains in pursuit of better alignment of “essential services.” However, given today’s fast-moving crisis, there’s no time for such an exercise, which in any event has already been studied extensively. Instead, the two countries should work immediately to align as closely as possible around the CISA guidance. While not perfect, CISA’s guidance is a product of extensive consultation with health policy experts, the private sector and other key stakeholders to create the broadest set of standards possible to maintain crucial economic activity while prioritizing essential emergency health measures.
The broad terms CISA has established are critical to ensuring that any sector designated “essential” isn’t crippled because key suppliers are deemed “non-essential.” It’s also crucial to establish coherence around these issues at the federal, state and municipal levels to avoid patchwork application of policies across jurisdictions, such as has occurred because of more restrictive measures applied by the Mexican State of Sonora.
The U.S. private sector helped inform the original CISA guidance and stands ready to work with both governments to hasten alignment between the U.S. and Mexico on “essential services” policy. In the midst of this unprecedented crisis, action by policymakers on both sides of the border can’t come fast enough.