USMCA overshadowed by pandemicHouston Hispanic Chamber of Commerce • Sep 14, 2020
USMCA, overshadowed by pandemic, seen speeding post-COVID recovery
Avocados, tomatoes, cars, computers and oil head north while gasoline, auto parts, computer chips, natural gas and corn head south.
That’s the basic rhythm of trade along the U.S./Mexico border, where the two nations exchanged $41 billion worth of goods in June — roughly $1.4 billion per day, or nearly $1 million per minute.
Shutdowns related to the coronavirus pandemic have not stopped cross-border trade, but they have slowed it. The $243 billion in trade between the two nations during the first six months of the year marked a 21 percent drop from the nearly $309 billion one year prior, according to Miami trade data firm World City.
Once the pandemic ends, however, international trade experts expect a quick recovery, spurred by the United States-Mexico-Canada Agreement. Known as USMCA, the three-way trade deal was drafted as an update to the 26-year-old North American Free Trade Agreement. The pact, signed by all three nations in November 2018, quietly went into effect July 1.
Taking effect as the United States and Mexico struggle to contain the spread of the highly contagious and deadly virus, USMCA is expected to speed the post-COVID recovery, especially in Texas, a border state World City figures show accounted for nearly two-thirds of U.S. trade with Mexico through June.
Although the deal largely kept NAFTA intact, USMCA has some important updates that are expected to add jobs and keep more money in the region. Automobiles must now have 75 percent of their components made in either the United States, Canada or Mexico to be tariff-free. That’s an increase from the 62.5 percent under NAFTA.
USMCA also added provisions for intellectual property, cross-border data transfers and digital commerce, which did not exist when NAFTA was enacted in January 1994 but have since become economic drivers.
“We’re not talking about a small market here,” said Alicia Kerber-Palma, Mexico’s consul general in Houston. “On the contrary, this deal represents over $1.5 billion of daily trade between the U.S. and Mexico, that benefits 500 million consumers in all three countries. We’re talking about almost 19 percent of the world’s gross domestic product.”
Mexico ended last year as the No. 1 trading partner for the United States for the first time ever, a position it reached thanks in large part to the U.S.-China trade war. And of the $615 billion of trade between the two nations last year, more than $14.1 billion went through the Port of Houston, making Mexico the Bayou City’s top trading partner in 2019, World City trade figures show.
The pandemic has temporarily slowed the port’s energy-heavy trade with Mexico, but commercial ties with Houston and Texas run deeper than just shipments of crude oil, gasoline, diesel and jet fuel.
Mexican firms such as state-run oil company Pemex, cement giant Cemex, airline Aeromexico, bread maker Bimbo and dairy bottler Lala employ thousands of people in the Houston area while numerous Texas companies in the energy, medical and manufacturing sectors have a presence in Mexico.
“We all consider USMCA to be critical to the state and region as we move out of recession,” said Laura Murillo, president of the Houston Hispanic Chamber of Commerce.
COVID has caused what most trade experts view as a temporary dip in cross-border commerce, but some Houston companies are seeking to turn the pandemic into a business opportunity.
Headquartered in Cypress, Petra Oil makes motor oil and numerous other products used by auto dealerships and oil change shops. The privately held company’s president, Arnold Gacita, saw COVID taking its toll on sales and responded by launching four new products over the last four months — face masks, liquid hand sanitizer, gel hand sanitizer and a sprayable disinfectant.
Gacita said USMCA makes shipments to Canada and Mexico tariff-free and usually with less customs paperwork than other destinations.
“A lot of companies import products from Mexico,” Gacita said. “We’re one of the few exporting constantly to Mexico.”
However, it may take some time before other manufacturers feel the full economic benefits of USMCA.
Pandemic shutdown orders disrupted manufacturing operations around the world, forcing some companies to rethink supply chains and what nations their parts come from.
Tony Garza, a former U.S. ambassador to Mexico-turned-trade expert with international law firm White & Case, said the issue played out in a “dramatic fashion” in North America.
“As Mexico shut down its factories amid the pandemic, U.S. companies suddenly couldn’t get the parts necessary to continue their production,” he said. “Eventually, U.S. companies pushed Mexico and succeeded in getting factories added to the country’s list of essential businesses that could reopen. However, this episode and similar experiences globally will reshape how companies think about their supply chains and resilience.”
Post-COVID, one of the biggest beneficiaries of USMCA is expected to be Laredo. Already a busy trade hub with Mexico, the trade war with China allowed the border city to become the nation’s top port in March 2019. Pandemic-related shutdowns in China allowed Laredo to reclaim that status again in February, according to figures from World City.
Trucking and warehouses employ nearly one-in-three people, who are regarded as essential workers during the pandemic. Nowhere is that more apparent than Laredo’s booming cold storage industry, which was already thriving before USMCA but has seen increased activity with more people staying home.
Avocados, tomatoes, strawberries and other produce are trucked in from Mexico and housed in cold storage warehouses before getting shipped on I-35 to San Antonio, Austin and beyond, or across U.S. Highway 59 to Houston and points east.
Supporting that trade, there are 25 cold storage facilities with 1.1 million square feet of space operating in Laredo while warehouses with another 500,000 square feet are expected to be added over the next year, figures from the Laredo Economic Development Corp. show. After the pandemic ends, USMCA is expected to bring investment beyond the cold storage sector, Laredo Economic Development Director Teclo Garcia said.
“Tesla is coming to Austin, but 25 percent of their parts are made in Mexico,” Garcia said. “We can play a part in that. Austin is right up the street on I-35. We want to take advantage of that regional economy.”
U.S. Rep. Henry Cuellar, D-Laredo, is pushing for the trade deal to be supported by two projects — the Ports-to-Plains Corridor from Laredo to Denver and a second international rail bridge to Mexico in Laredo.
Tony Payan, a U.S-Mexico relations expert with Rice University’s Baker Institute, said the Trump administration’s push to update NAFTA created two-and-a-half years of uncertainty among investors, which resulted in some projects being put on hold.
“Nobody was celebrating with champagne after the deal was signed,” Payan said. “From the Yukon to the Yucatan, all’s you heard were sighs of relief.”
And then, the pandemic happened. COVID and USMCA could potentially incentivize U.S. manufacturers operating in China to open backup plants or move their operations south of the border, but Payan said that depends on an unpredictable wild card — Mexico’s president, Andrés Manuel López-Obrador.
Known as AMLO, Mexico’s left-of-center nationalist president has a knack for making foreign investors nervous by favoring government-funded projects over the private sector, Payan said.
“Even after USMCA, which raised the minimum wage for autoworkers in Mexico, the cheapest labor out of the three nations is still in Mexico,” Payan said. “But AMLO is hostile to private investment. … He’s deeply distrusting of the private sector.”
Mexico and Canada also eased their rules about taxing individual packages coming from the United States, meaning U.S. e-commerce providers do not have to pay as high pay taxes on products shipped to customers in those nations.
The trade deal also strengthened intellectual property and privacy laws that protect the online trade of music, electronic books and other products. And as smart phone use and video streaming services continue grow in Mexico, more communications networks will need to be built, including some that cross the border.
Duncan Wood, director of the Wilson Center’s Mexico Institute said USMCA enacted privacy laws and the movement of data in a way that lays the groundwork for a 21st century economy.
“For companies like Google, data is critically important,” Wood said. “And if data is the new oil, we need to have rules to govern its trade and movements across borders. Businesses need and want certainty.”
As published by the Houston Chronicle https://www.houstonchronicle.com/business/texas-inc/article/USMCA-overshadowed-by-pandemic-seen-speeding-15553482.php