Mexico City, Mexico — Months have passed since Trump’s threats and fears seem to be fading. After the momentary freeze, more and more companies are moving to Mexico to take advantage of low wages.
Things were not supposed to be that way, but those who helped US companies set up their production in Mexico say they have had a very good year.
Tecma Group has more business than ever in the three decades it has been organizing transfers. During the past few weeks alone, the company has he helped move a cleaning equipment manufacturer and packaging company south from the US to Mexican territory.
Mexico Consulting Associates, headquartered in Chicago, also has three new clients interested in Mexico. Keith Patridge who heads McAllen Economic Development, estimates that at least 12 companies will be set up this year in Reynosa.
Another firm, Tacna Services, has already helped two companies establish themselves in the Baja California area.
It was thought that President Donald Trump’s promise to abandon or renegotiate the North American Free Trade Agreement would discourage companies considering Mexico. But many have plans to settle in the country even if the pact is not renewed, according to relocation industry experts.
There are many factors that influence their decisions, but these companies have made a simple calculation. Mexico’s cheap labor is saving an average of $20,000 per employee compared to the United States, which is enough to offset the higher costs of any tariff that may be imposed if NAFTA disappears.
The calculation shows that Trump’s United States First policy aimed at reviving manufacturing is facing obstacles.
“If NAFTA was eliminated and traditional tariffs were reverted, I think it would be manageable,” said Ross Baldwin, chief officer of Tacna. “Life would continue because the cost of labor is very different.”
The latest round of talks over the 23-year trade agreement ended last week with Mexico and Canada’s rejection to the harsh US proposals. Negotiations will resume in November, but ministers agreed to postpone a resolution until next year.
Some economists predict a less idyllic outcome than the transfer firms, which have motives for boosting an optimistic view of their business.
Economists are referring to studies that warn of drastic consequences if the agreement is eliminated. These could include the loss of more than 250,000 jobs in the United States and almost 1 million in Mexico, where NAFTA has led to a profound transformation.
Trade with the United States last year increased sharply to $524 billion, compared with $82 billion in 1993, the year before the pact was put into effect.
After his election, Trump publicly harassed executives who intended to move manufacturing to Mexico.
The campaign worked for a few months causing some companies to freeze their Mexican plans. But the flow of jobs heading south was resumed this year as companies evaluated the cost advantages.
Under NAFTA, the three countries do not pay tariffs on almost all products that cross their borders. But if Trump decides to abandon the agreement, the trade would be subject to the tariffs established by the World Trade Organization.
These are averaging less than 3.5 percent for Mexico and about 7 percent for the United States, said Benito Barber, an economist for Latin America at Nomura Holdings. Many companies can simply afford these costs because of the pay gap.
An initial salary for a worker at the Tijuana plant, including benefits, is the equivalent of about $2.50 USD an hour, according to Baldwin. The average hourly wage for US assemblers is $14.93 USD per hour with the lowest 10 percent earning $9.24 per hour, according to data from the Bureau of Labor Statistics. In addition, labor costs in Mexico have barely changed over the last two decades, while those in China have grown steadily.
Intermex industrial parks, which provide real estate and factory services, state on their website that US companies can save $20,000 per worker per year and promote Mexico as “one of the best in job stability.”
Kongsberg Automotive, manufacturer of auto parts, takes advantage of the differential. Earlier this year, it closed a factory in Easley, South Carolina, which manufactures pipes and hoses, and moved production to Mexico, the Norwegian company said in August. The factory employs 97 workers.
“There is a great need to be more efficient and reduce costs, which can only be achieved by relocating Easley’s manufacturing operations,” Kongsberg said.
Halyard Health is shutting down a plant in Buffalo Grove, Illinois, which manufactures medical devices and is moving parts of operations to Mexico, according to reports. The dismissals of its 85 workers began at the end of September. Halyard already has factories in four Mexican cities, according to a company presentation.
All the new business has even experts surprised in the increase in relocations.
Gene Reilly, American head for Prologis, an industrial real estate developer with operations in Mexico says, “Actually, demand has probably grown slightly and conditions right now in Mexico are pretty good.”