By Gianluca Corinaldesi and Meredith Watkins
When COVID-19 spread in North America, few realized how the virus would affect the intricate supply chains that are behind most products we consume. An international trade-dependent country like Mexico was particularly hit, with 67% of its economy based on exports, 80% of which are to the United States.
At the recent webinar on “COVID-19 supply chain challenges in Mexico and Latin America,” former counselor at the U.S. Embassy in Mexico, Brian Brisson (who has just ended a five-year appointment there) said that at the embassy: “We rarely got questions about supply chains.” But in late March, “within days, we had around 400 different companies contacting us about supply chain issues,” he recalled. Even U.S. companies that weren’t operating in Mexico would contact the embassy because “they were dependent on their Mexican suppliers in order to manufacture what they do in the United States.”
“We do not realize how dependent we are on supply chains,” commented Jorge L. Torres, who also joined the webinar. Torres is the president of FedEx Express Mexico and also the president of the American Chamber of Commerce in Mexico. He brought attention to the misalignments between U.S and Mexico in both the “criteria” determining the “essential” industries that could still operate, and the “timing” of the governmental decrees determining those same criteria. With Mexico initially prioritizing the health system and the U.S. leaning more towards the economy, Torres said, the misalignments have already been costing Mexico a projected 12% decrease of GDP for 2020.
Coincidentally, the new North American trade agreement between the U.S., Mexico, and Canada (USMCA) has just become effective on July 2020 and, as Brian Brisson remarked, the COVID crisis taught us that there needs to be a “mechanism (within the USMCA agreement) that ensures supply chain security and creates a vehicle by which companies and governments can address their concerns about supply chains when they arise in an orderly and timely fashion.”
The good news is that investing in North America will become more attractive, the panelists agreed. “Nobody anticipated that the USMCA was going to be effective on July 2020,” Torres added. “We need to capitalize on (the historical opportunity) because a certain level of investment that was already in Asia or China, or planned to be there,” will come back to North America, he predicts.
“There will be a lot of pressure to re-shore or near-shore,” said professor Gary Gereffi, the director of the Duke Global Value Chain Center and the moderator of the discussion.
“This is driven by supply chain security,” concurred Brisson, who also pointed out the unique opportunity for Mexico: “Mexico is one of the top candidates for receiving new investments for reshoring and nearshoring. Having a supply chain agreement among the three countries would greatly enhance the attractiveness of producing in North America.” People are afraid of problems with supply chains, he concluded: “If you can allay those fears (with a mechanism in place within the USMCA for resolving supply chain challenges) you will become an even more attractive and more competitive market.”
Giovanni Zanalda, director of the Duke Center for International and Global Studies (DUCIGS) completed the panel and moderated the Q&A.
This event is the fourth webinar in the DUCIGS/Rethinking Diplomacy Program, "COVID-19 and Global Supply Chain Series," supported by the Josiah Charles Trent Memorial Foundation Endowment Fund. For articles and videos of the first three installments follow the link.
Watch the full-webinar video:
Here are some excerpts from this event:
ON TRANSPORTATION AND LOGISTICS AS AN ESSENTIAL INDUSTRY
Jorge L. Torres, President, FedEx Express Mexico and President, American Chamber of Commerce Mexico
“The transportation and logistics industry was confirmed as essential in every single country and worldwide. Not essential for the continuity of the economy; even more important, transportation and logistics was confirmed in every single country as an essential activity for the continuity of life.”
ON ISSUES MEDICAL MANUFACTURERS SAW IN EARLY PANDEMIC SHUTDOWNS
Brian Brisson, former Minister Counselor for Commercial Affairs, U.S. Embassy in Mexico
“Healthcare was obviously essential right from the outset. But when you're making ventilators, you need electronic sensors and these electronic sensors were not considered an essential industry. When companies that are making ventilators needed to make their product, they needed their suppliers to be available to them, but they were not always open.”
ON THE IMPACT OF COVID-19 ON MEXICAN SUPPLY CHAINS
Jorge L. Torres
We do not realize how dependent we are on supply chains until we have them effected. Actually around 90% of the companies in Mexico had a certain level of negative impact. Around 70% had to see their supply chains interrupted somehow. So that was catastrophic.
ON A SUPPLY CHAIN AGREEMENT ENHANCING THE ATTRACTIVENESS OF PRODUCING IN NORTH AMERICA
“Having a supply chain agreement among the three countries would greatly enhance the attractiveness of producing in North America. The reasons people are near shoring and reshoring is because they're afraid of problems with supply chain. So if you can allay those fears, you will become an even more attractive and more competitive market. I think that's where we really need to be going in the future with the three governments.
ON THE IMPORTANCE OF THE USMCA FOR MEXICO
Jorge L. Torres
The US and Canada represent 490 million potential consumers of what is produced by Mexico, which is equivalent to 6.5% of the world's population. Mexico, the US, and Canada are extremely important markets for Mexico. So now with the USMCA having been in effect since July, the this is going to be a vehicle that is going to be helping us out. It's a vehicle that will help us transit to the end of this calendar year. As much as we can capitalize on that in the benefit of all three countries with a with a true spirit of becoming the most competitive region in the world, that's going to be to the benefits of all three countries.
ON MEXICO AS AN IMPORTANT GLOBAL SUPPLY CHAIN LINK
“What many companies in Mexico, the United States, and Canada have not taken advantage of is the fact that Mexico has trade agreements with 50 countries in the world. This means that Mexico is not necessarily just a supplier for North America. It is a platform for global supply chains. That offers companies opportunities to lower their costs and improve their competitiveness, not only within North America, but within Latin America with Europe with Asia.”
ON SAFEGUARDING NORTH AMERICAN SUPPLY CHAINS FROM FUTURE PANDEMICS
“People, after COVID, will have a much clearer understanding of the importance of intricate intricacies of the supply chain integration…I think that if our three countries can get together and come up with a mechanism for resolving supply chain challenges when they arise and a basic framework for how we can address supply chains when stressing conditions like a pandemic or something else could come up in the future. I think that that will greatly enhance our competitiveness, our ability to make North America a great place, to really improve it for Mexico and at the end of the day, I think it's also going to help us to mitigate the downward economic impacts that we saw in this pandemic.”