Since NAFTA was instituted in 1994, the volume of trade between the Mexico, the United States and Canada has increased by a factor of three. In 2016, tariff-free trade among the countries was valued at approximately eighty billion US dollars. Fourteen percent of global trade is now conducted under the umbrella of NAFTA Rules.  Although trade has experienced exponential growth as a result of the accord, a reworked NAFTA is necessary to bring the tripartite free trade agreement up-to-date.

For the United States, Canada and Mexico, there are benefits and potential pitfalls, as well as objectives and goals associated with the imposition of a reworked NAFTA. This article will take a view of the subject from Mexico’s perspective.  Initially, it will examine the conditions under which Mexico will negotiate with its partners.  Secondly, it will enumerate some of the pluses that Mexico can potentially gain by renegotiating NAFTA favorably, and, finally, it will consider several potential pitfalls that may be present.

A REWORKED NAFTA: MEXICO’S CONDITIONS

Mexico’s Economic Secretariat (SE) has presented the circumstances under which it is willing to establish a reworked NAFTA. The following five items have been communicated by Mexican government trade and commerce officials as those that are of most importance.

Mexico will do no renegotiating of the NAFTA if the imposition of duties is included: In a recent discussion with Bloomberg, Idelfonso Guajardo, Mexico’s Secretary of the Economy, (SE), declared that his country would withdraw from negotiations should the United States commit itself to imposing tariffs or any quotas on any of its imports from Mexico.

Mexico, the United States, and Canada will coordinate their efforts to further do away with non-tariff protectionist barriers that have remained in place until the present: Mexico’s Economics Secretary made it clear in recent public pronouncements that it is his government’s stance that the maintenance of barriers to trade is not in the interest of the NAFTA member nations.

Any reworked NAFTA must include sections on the environment and labor: At the last meeting of officials of Asia-Pacific Economic Cooperation (APEC) countries, Mexico’s President, Enrique Pena Nieto, declared that any renegotiation of the NAFTA would have to include talks in both of these critically important areas.

A recognition of the mutual value of the NAFTA by the government of newly elected President Donald Trump: Since his campaign, Trump has been a harsh and vocal critic of NAFTA. Mexico’s Economics Secretary, Ildefonso Guajardo, recently stated that Washington’s recognition of the benefits for both countries of the North American Free Trade Agreement “is a must.”

Finally, a reworked NAFTA must produce a “win” for all parties:  Mexico’s president, Enrique Pena Nieto, emphasized that negotiations between Trump and Trudeau administrations and Mexico would be adhere to five guiding principles that include: the preservation and strengthening of national sovereignty, a greater regional integration and a comprehensive renegotiation of the twenty-three year old accord, a respect for jurisprudence in each of the three countries,  as well as the maintenance of an overall constructive vision for the future of the agreement.   Conditions for Mexico’s coming to the negotiating table include the following provisions:

POTENTIAL DOWNSIDES OF A REWORKED NAFTA

At the outset of NAFTA talks, which started on August 16 of the present year, officials from the US’ southern neighbor, emphasized that negotiating a bad treaty would be a negative for the country’s overall well-being and economic health. More to the point, a suboptimal deal would have an adverse effect on at three of the primary and foremost areas of the nation’s economy.

To start with, a poorly negotiated NAFTA could have a negative impact on the country’s ability to attract a larger share of global foreign direct investment (FDI). Companies, primarily from the United States, bring their capital and know-how to Mexico for producing within its borders to gain access to markets in which that country’s products enjoy preferential treatment. Mexico has a grouping of 10 free trade accords which constitute the framework that governs trade between itself and forty-five different nations. Additionally, Mexico is party to the Trans-Pacific Partnership Agreement (TPP), has thirty-two Reciprocal Investment Promotion and Protection Agreements (RIPPAs) with thirty-three nations, nine trade accords (Economic Complementation and Partial Scope Agreements) within the framework of the Latin American Integration Association (ALADI),

Secondly, a bad outcome of renegotiating NAFTA would be the negative effect that it would have on the growth of Mexico’s gross national product (GNP). The country’s Economic Secretariat cites information from the International Monetary Fund (IMF) that asserts that “the negotiated imposition of unilateral import taxes and other non-tariff barriers to trade and commerce would have a negative impact on imports to the United States, and would be a drag on the further expansion of the Mexican economy.”

Lastly, a downside that Mexico would most likely face resulting from a disadvantageously renegotiated NAFTA would be the loss of exports.  This would be provoked by the imposition of tariffs on certain products by all parties to the agreement. Should this happen Mexico’s Economic Secretariat (SE) prognosticates that, going forward, only thirty-five percent of goods shipped to the Canada and thirty-four percent of items sent to the United States would be free of duties. This would adversely affect the competitiveness of Mexican made products in both the US and Canadian markets.

POTENTIAL BENEFITS OF A REWORKED NAFTA

On the opposite side of coin, along with the possible risks of a reworked NAFTA, it is important to be aware of the benefits that a renegotiation of the twenty-three-year-old agreement could result in. The following are five areas in which Mexico could experience a positive result:

• Investment – The opening of Mexico’s energy sector will be the impetus for large-scale investment by the US and global companies.
• Negotiations – A newly revised North American Free Trade Agreement would open the possibility that, in the future, the three countries negotiate further trade agreements as a bloc.
• Energy Industry – Mexico, the US, and Canada all have highly developed energy sectors that represent great opportunities. When the NAFTA was first put into place Mexico was not able to exploit them.
• Migration – Migration is a topic that was not addressed in the first version of the NAFTA. Renegotiating NAFTA may present an opportunity to propitiate the integration of the three nation’s labor markets, and prove to be a mechanism for the establishment of guest worker programs.
• Agroindustry – Although some agricultural products such as corn, apples, and pears were replaced in Mexico by US product, Mexico has an opportunity to market more of its harvest in the US should it make the effort and required investment in updating its technology and means of production.

Business Leader Qualities Set Success or Failure

The effectiveness of leadership often determines the success or failure of a company. A business leader can make or break a team. There are varied opinions on what business leader qualities make someone successful. However, there are unique and achievable qualities all successful business leaders possess.  Business leader qualities set the stage for success or, in some instances, lack of business leader qualities set the stage for failure.

1. Ethical:

An ethical business leader treats others with fairness, which creates a workplace where employees feel comfortable. A study of 195 leaders in 15 countries over 30 global organizations sought to answer the question “What makes an effective leader?” “High moral standards” was among the most highly rated business leader qualities in the analysis. When a leader takes on this characteristic, it means they hold themselves and others to certain values and build a trustworthy environment. This environment makes their team feel safe so that they will be able to reach their full potential and drive each other to reach goals faster, achieve higher, and create an overall more successful business.

2. Humility:

Humility is an incredible business leader quality in the increasingly complicated and fast-paced business world. In the current business climate, one thing is becoming apparent: no one person can accomplish everything on their own. The world needs individuals who are conscious of their limits and aim to better themselves so that they can lead others successfully. It needs business leaders that understand they don’t have all the answers

Humility is the antithesis of ego, which often leads us to believe our way is always the right way. When we approach our work humbly, it illustrates an authenticity to others that then creates trustworthiness and human connection. A humble business leader is willing and able to learn, which also helps to build a foundation of trust among their team. Establishing trust allows leaders to encourage creativity and smart thinking.

Orly Maravankin, Founder of Edge Consulting, suggests ways that leaders can embrace humility, including the following: connect with your aspirations, adopt a mindset shift, expand your self-awareness, and ask for help. Each of these suggestions can be accomplished by quietly taking a step back and obtaining a realistic view of one’s successes and failures.

3. Discipline:

This business leader quality is applicable in many areas, even as one strives to be more humble. However, it is of specific importance when it comes to action. A great leader is not defined by who they are, but by what they do. Ronald Heifetz, the author of “Leadership Without Easy Answers,” suggests that rather than defining leadership either as a position of authority or a personal set of characteristics, we should define leadership as an activity.

It is crucial that a business leader make quick and efficient decisions. Effective action derives from being disciplined in one’s understanding of individual motivation, as well as company motivation. When a leader is firm in their motivation, they will be better suited to motivating a team to act, so together they can reach their goal.

4. Open-minded:

In any business, leaders and their team must be willing to learn.  They must be able to grow and adapt to survive in an increasingly competitive market. To foster learning in a company, a leader must remain open-minded. When one displays a willingness to be open and unbiased, it eases worry about being wrong and failing.

Excellent ideas take shape when a leader openly acknowledges the inevitability of failure and encourages risk-taking. In Sunnie Giles’ article “The Most Important Leadership Competencies, According to Leaders Around the World”, he suggests that leaders “try to approach problem-solving discussions without a particular agenda or outcome, withhold judgment until everyone has spoken, and let people know that all ideas will be considered.” This approach promotes the formation of diverse and unique ideas.

Ultimately, business leader qualities depend on the individual.
Leaders must find a personal approach to leadership, one that suits their role and their business. However, it is beneficial to everyone when leaders make an effort to better themselves and adopt new strategies and qualities that propel their business forward.

NAFTA Negotiations Progress

There has been uncertainty surrounding the fate of the North American Free Trade Agreement.  After Donald Trump had declared that he would reverse NAFTA, many feared that it would uproot years of a mutually beneficial free trade.  However, he has said little about what changes he would make. This created doubt for those considering the possibility of doing business in Mexico, and those already doing business in Mexico. In this update on NAFTA Negotiations Progress, we will lay out evidence that is leading many to believe that NAFTA will remain substantially intact.

Trump and his administration are taking different approaches to the situation.  While Trump’s language has been inflammatory, and his distaste for NAFTA obvious, his administration has been more cautious in their discussion of the pact.  The more reasonable approach taken by the administration indicates that they may not abandon NAFTA as quickly as many have feared.  Still, the government is divisive.  Some are pushing for a protectionist route, while others are in favor of continuing free trade.

However, a protectionist stance would harm several critical U.S. industries, namely sugar and gas.  The sugar industry is at the forefront of various trade issues between the U.S. and Mexico, but the repercussions of said issues will quickly spread into international trade markets.  More importantly, the handling of sugar negotiations will set a precedent for the ongoing NAFTA negotiations and underscore the importance of keeping the pact together.

Ultimately, if sugar costs rise then it will have an adverse effect on jobs throughout the food industry.  Manufacturers across the U.S. rely greatly upon sugar for their products, and companies that produce items like candy are already moving manufacturing to other countries to cut down costs.  Both the U.S. and Mexico will benefit from an agreement that ensures a fair and prosperous life for the sugar industry.  Farms across Mexico employ 450,000 workers during harvest season, and an increase in import taxes on sugar would cost thousands of Mexicans and Americans their jobs.

The natural gas industry is also very involved in these negotiations. American natural gas powers more than a quarter of Mexico’s electricity.  NAFTA has given American energy companies a chance to thrive, especially in Texas where the panic over NAFTA changes is increasing.  It will be unfavorable for both sides if the negotiations go poorly, ending in a disastrous energy shortage for Mexico and a significant loss of income for American companies.  Mexico has already begun searching for alternative power sources in case the agreement falls through, and their current sources are cut off.

However, oil and gas producers in Texas would be the first to fight back in the extreme case of a trade war.  The production of natural gas in the U.S. surpasses the demand, which means that gas prices would collapse if Mexico, one of their largest customers, is lost.  Likewise, natural gas is a vital resource for Mexico.  It generates electricity for their major cities and provides power to citizens and industries alike.  For these reasons, the natural gas trade between Mexico and the U.S. is crucial and should continue without restriction for the success of both countries.

Canada is also an important trading partner involved in these matters.  They import dairy products and softwood lumber, among other resources, into the U.S.  Prime Minister Justin Trudeau of Canada stands firm that Canada does not need a “Plan B.” He has expressed that he does not believe the pact will fall through because of the economic benefits that it provides to the United States.

Overall, this NAFTA Negotiations Progress Report suggests that there is more reason to support the continuation of free trade throughout North America than there is to oppose it.  The United States would suffer considerably without the current pact.  America would lose credibility with other trade nations, as well as valuable opportunities and resources brought in from other North American countries.  In all likelihood, the North American Free Trade Agreement will not undergo significant changes any time soon because of the incredible benefits it affords for companies in Mexico and the U.S.

For additional information on NAFTA Negotiations Progress and other subjects of interest to manufacturing companies we encourage a regular reading of our blogs at http://tecma.com

Mexico Manufacturing Reducing Production Costs 50% or More

U.S. companies are exploring Mexico manufacturing as a way to reduce production costs 50% or more.

In response to global economic fluctuations, companies have to constantly modify their budget plans.  CEO’s must use strategic thinking in order to create and deliver a product that will keep them in competition with other companies.  For this reason, quality is not always the most important factor in manufacturing.

Regardless of a product’s quality, if a competitor is producing higher quantities in a more cost efficient manner then they are more likely to generate greater revenues than their competitor who is producing the same product at a higher cost.

This way of thinking varies among companies, as one company may have success with a certain strategy while another does not.

In recent months, potentially radical changes suggested by Donald Trump have caused waves throughout the economy.  This has caused manufacturing businesses to modify their plans in order to be more flexible to change.  The fragile economy has U.S. companies developing new strategies for the health of both their present and future business.  Companies must look ahead and plan accordingly in order to maintain their business’s growth.  However, Trump’s promise to keep U.S. businesses on U.S. soil by prohibiting movement to foreign countries has greatly influenced business owners’ decisions.

Mexico Manufacturing – A Serious Consideration

Some businesses have taken extreme measures by moving plants and headquarters out of the country, often at their own risk.  While moving between states might improve company budgets, hiring workers from another country where the wage is much lower can significantly reduce overall costs as well as the cost of products.  Many CEO’s have opted for hiring workers in Mexico to do the same job an American would have done in the past but at a much lower cost. NAFTA (North American Free Trade Agreement) facilitates bringing goods into the U.S. duty-free, which makes hiring Mexican workers the simplest choice for U.S. companies that want to stay on top of economic changes. The choice to move manufacturing to Mexico where employees deliver the exact same product at much lower costs without compromising quality or quantity has dramatically benefited both Mexican lives and revenue stream for U.S. companies.

Despite the wage gap between Mexico and America, Mexicans who have had the opportunity to work for these companies have experienced a positive impact in their lives professionally and economically.  This has been a source of controversy among Americans.  They view the situation as if they are losing their jobs to foreigners, which is something Trump has spoken out against.

Many manufacturers in the U.S. have chosen the option of using robots to do certain jobs.  In this case, they would only have a few workers overseeing the machines’ efficiency rather than paying more workers to do the manual labor themselves.  With Mexico Manufacturing it is cheaper to have humans do the manual labor at a much lower wage than it is to employ the use of robots.  This strategy allows many companies to stay in competition with their rivals.

There have been mixed opinions and concerns regarding the companies that have decided to hire employees in Mexico. Economists suggest that this decision benefits both countries, whereas others have agreed that hiring Mexican workers hasn’t had any effect on the low employment rate in the U.S. nor the loss of jobs.

Numerous manufacturing companies have found success with Mexico manufacturing, and it is apparent that it has had a more positive impact than a negative one. Despite Donald Trumps’ belief that all U.S. companies should be kept within the U.S., many companies have gone ahead with foreign manufacturing.  Yet the economy was able to generate high numbers of jobs since December 2017. Giving work opportunities to our neighboring country’s employees has shown to improve overall manufacturing in the U.S.

Manufacturing companies moving across the border is a trend that will continue. Only time will tell how many jobs will continue to be created in the U.S., and whether or not this trend is jeopardizing America’s economic stability and professional opportunities.

Companies foreign to Mexico who would like to learn more are invited to visit http://tecma.com.

Make Mexico Great Again

In an interview last Friday, US Secretary of Commerce, Wilbur Ross, spoke on positive considerations for Mexico in the looming NAFTA renegotiation that resulted in a Mexican peso surge. It appears that Ross is discussing the possibility of asking Mexico to consider raising its minimum wage. The Mexican minimum wage is a fraction of the U.S. minimum wage. Workers there must be paid at least 80 pesos a day, which works out to be only about $4.00. The U.S. minimum wage is $7.25 an hour, or $58.00 for an 8-hour day. Some have heard discussions about how Ross’ plans could Make Mexico Great Again. While the thought of renegotiating NAFTA has caused concern, Wilbur’s comments sparked optimism for what those negotiations might entail.

Renegotiating NAFTA

The Mexican peso surge on the morning Commerce Secretary Ross made these comments indicates the hope of Mexicans that renewed discussions regarding the North American Free Trade Agreement will bring much-needed benefits to Mexicans. The agreement was supposed to help raise the standard of living for the average Mexican worker, yet as Morris pointed out in his comments, the minimum wage in Mexico is still woefully low. Factoring in a significant minimum wage increase seems to have resonated with the Mexican markets. And the resulting Mexican peso surge may also prove to be a bellwether foretelling a turnaround for the peso in coming months if the renegotiation agenda moves forward.

Among the other primary points the Trump administration wants to renegotiate with its NAFTA partners are:

• Tightening rules of origin creating jobs in the US, Canada and Mexico.
• Stabilizing the peso-dollar exchange rate.
• Preventing illegally subsidized goods from benefiting from trade protections.
• Improving living standards for Mexican workers.

Possible Benefits of Mexico Increased Minimum Wage

Let’s say, for illustration purposes, that Mexico increases the Minimum Wage from $4.00 per day to $20.00 per day; a 500% increase:

1. A gradual reduction of visible poverty in Mexico with an expanding middle class.
2. Families having discretionary funds with which to improve personal education and healthcare.
3. An expanding marketplace of millions of people for U.S. products, increasing US exports.
4. Increasing jobs in the US due to expanded exports to Mexico.
5. Increased tourism from Mexico to the US and Canada due to expanded family budgets.
6. Mexico governmental tax receipts increasing through its current income tax laws.
7. Strengthening of the Peso.
8. Reduction of Hispanic illegal immigration into the US as they will be able to earn life sustaining incomes at home.
9. Reduction of Border Security Costs as illegal access to the US is reduced.
10. Reduction of US prison costs currently housing tens of thousands, needlessly.
11. Reduction of US court costs as fewer illegal immigrants cross into the US.
12. NAFTA negotiations would have minimal impact on US/MEXICO relations, in fact relations would improve.
13. Development of a true global manufacturing center with Canada, US and Mexico working as one.

The logic of Will Ross’ statements is catching the world off guard.  It is said that Wilbur Ross is a man that thinks out of the box.  In this case, no one can find the box.  Who would have thought the Make Mexico Great Again theme could solve so many problems.

Make North America Great Again

Donald Trump ran on an “America First” campaign platform, and repeatedly referenced his intentions to renegotiate NAFTA to make sure the US gets what he considers a better deal. The push has been characterized as an attempt to benefit the US at the expense of her southern neighbor, yet Ross’ comments last week sounded altogether different. Iterating what some have referred to as a “Make Mexico Great Again” message, the US Secretary of Commerce outlined some of the objectives he hopes will come out of NAFTA discussions with Mexico, including a minimum wage hike for Mexican laborers and a strengthening of the Mexican peso.

The peso declined last year by about 8.7%, yet in reaction to Ross’ prophetic comments, the markets reacted with a Mexican peso surge. In one morning, the peso rose 1.9% after comments Ross made in an interview, suggesting that renegotiations with Mexico could benefit both Mexico and the US:

“The peso has fallen a lot, mainly because of the fear of what will happen with Nafta…I believe that if we and the Mexicans make a very sensible trade agreement, the Mexican peso will recover quite a lot.”

For further information on the ‘Make Mexico Great Again’ news and other such topics affecting the US and Mexico be sure to visit our blog at http://tecma.com.

Border Tax – Mexico Win or Loss?

There has been much discussion in the media concerning the a border tax and its effect on international trade.  Of importance to us is the potential effect on our clients.

The current administration is questioning if restrictions of trade is the key to job creation in the U.S.   The question is how to implement such restrictions if such findings prove to be beneficial to US job creation.

Some ideas have been created, of which border tax is one:

• 20% Import tax (duty) on all goods imported from Mexico
• 20 % Percent Import Tax of Companies Moving Jobs to Mexico
• The elimination of NAFTA
• The renegotiation of NAFA
• 20% Border tax (duty) on all goods imported into the United States.

These ideas have created chatter, opposition voices have started and are becoming loader.  Chatter on this subject is coming, not only from Mexico, but from other countries in Europe, Asia and virtually the entire planet.

The worldwide community will not accept pressure from the U.S. and will most likely take action to counter any U.S. protectionism.  The role of the World Trades Organization (WTO), intergovernmental organization which regulates international trade, is also important to note.  The WTO will ensure that the U.S. abides by previously signed agreements, and will not let the U.S. impose unilateral duties.

It is important to note that although the President can issue executive orders immediately imposing duties on certain companies and countries that these duties will be challenged in court.  He also needs the support of Congress to pass permanent legislation, and support for such legislation is dwindling as the true impact of such changes is understood.

In the Worst Case

Let’s assume the President calls for renegotiation of NAFTA and NAFTA is terminated after the required six-month period.  The President then executes an executive order sighting an economic emergency, imposing a 20% tariff on all goods imported from Mexico.  The various companies involved and Mexico bring suit in the U.S. and WTO to halt the executive order sighting that there is no emergency, and that the tariff is punitive and unfair.

The rulings in the U.S. and WTO prevail and an overall Mexico Border Tax no greater than 2.7% for ‘most favored nations’ status is imposed by the U.S. on goods imported from Mexico, as allowable by the WTO.  Companies that utilize U.S. goods in their operations in Mexico import their finished goods into the United States under the provisions of the 9802 Program.  This program allows U.S. components to be exempted from duties, with only foreign content being subject to the max 2.7% duty.   This is what I see as the worst case scenario for the Mexico Border Tax.

Most Probable Case

President Trump calls for renegotiation of NAFTA with Canada and Mexico.  The negotiations may focus on the rules of origin, which is currently a loop hole that allows non-North American raw materials to enter into North America at preferential or free duty treatment; Asia being the most visible benefactor.

The materials are then assembled into a finished article. Because the finished article was under the rules of origin there is no duty.  Negotiations are underway on a modification to NAFTA requiring a finished article to meet a minimum local content rule for the finished article to qualify under NAFTA for duty free treatment.  This will drive more production from outside of NAFTA to the U.S., Mexico, and Canada.

Mark Earley
CFO, Tecma Group of Companies

Skilled Labor in Mexico has been the focus of Mexico’s educational systems for years, but renewed emphasis in recent years has produced a boom. Mexico’s government has become quite proactive in training their youth to fill skilled roles in manufacturing and other areas vital in a global market. And Mexican vocational training programs are often sponsored by private industry and universities. The Mexican path has been to draw from the Germ model of apprenticeships, and the resulting boom may well fill the vacuum of skilled labor currently developing in North America.

Skilled Labor in Mexico Involves German-Model Apprenticeships

The German model of training skilled labor has been quite effective in Europe. And Mexico is experiencing great results with it as well. In this model, private companies typically partner with universities to combine relevant classroom training alongside hands-on experience in the field.

• The Bendix Program:

One such program is led by Bendix, a member of the Knorr-Bremse Group, a German braking-systems manufacturing leader. Their program trains 240 students for one-two months each year via 12 courses in occupational safety, quality, metrology, lean manufacturing, problem-solving tools, leadership, teamwork, and more. Students study four days each week in classrooms and one day per week in the manufacturing facility. After the training, Bendix typically hires most of these apprentices full time.

• The Volkswagen Group Academy:

Another such program is the Volkswagen Group Academy, which provides students with a three-year course and all related expenses and then guarantees graduates employment with VW or one of its suppliers. The best trainee of each class is awarded an all-expenses-paid trip to Germany. Programs like this one are becoming quite common in Mexico.

Skilled Labor in Mexico is Looking to the Future

Mexico’s focus on skilled labor is part of the country’s vision for the future. Years ago, the Latin America country observed the need for manufacturing and other skilled labor roles and responded in kind. Mexico has aggressively pursued the strategic objectives for its vocational and technological education initiative (VET). As such Mexican vocational training has been quite successful, with some accomplishments including:

• 52 institutions have been granted authority to evaluate and certify competencies.
• The Occupational Competency Standardization and Certification Council now issues approximately 60,000 certificates per year on average.
• Approximately 140 competency management committees have been formed across such fields as construction, automotive, tourism, and renewable energy.

Mexico skilled labor is enjoying a boost in nearly every field, thanks to this renewed emphasis on sensible training programs and partnership between the private sector and academia. The German model of apprenticeships has served them well. Mexican vocational training programs are among the finest in the world, producing a skilled workforce that will meet North American demand for decades to come.

For further information on Skilled Labor in Mexico visit our blog at http://tecma.com

Many good numbers are coming out pointing to US job growth. But there are also many negative reports that seem to contradict the good news. Why are so many Americans not working? Is there a shortage of skilled labor in the US? Will bringing skilled labor jobs back home and renegotiating foreign trade deals answer the employment question in the US? Or is there more to this equation?

US Shortage of Skilled Labor

Unemployment reached 4.7% in the US at the end of 2016. This number is approaching what many call “full employment.” US job growth is certainly good news. But it’s only part of the story. 17 million Americans are seeking full-time employment while the number of job postings continues to rise. Why aren’t job postings translating into fewer Americans seeking employment? The fact is, those job postings are remaining unfilled for record lengths of time, and employers are reporting they simply cannot find workers with the right skills or experience to fill these roles.

America has a severe shortage of engineers, occupational therapists, manufacturing laborers, mathematicians, and many other skill sets. Baby Boomers, who were trained in skilled labor and production-oriented roles, are now retiring in droves. Will the next generation be able to replace them in the same kind of roles? Educational institutions believe they are providing young people with training relevant to the jobs they will face – yet employers overwhelmingly disagree.

Is renegotiating NAFTA and bringing manufacturing jobs back from overseas going to put more Americans to work? Will more jobs automatically equal more skilled labor to work them? What happens when the reality of shortage of skilled labor is realized? Or should we start asking different questions altogether? Questions like, where are the skilled laborers to fill these jobs? Why is US labor productivity declining? Why are job listings going unfilled? How can we better match American skills with the jobs available to them?

Skills vs. Jobs

If US laborers are not trained or experienced to meet the rising demand for skilled labor roles in the jobs market, US job growth will matter little. Many employers want highly experienced and trained labor for jobs currently open in the US – but they cannot find those workers domestically. Rather than punish those business executives for turning to automation and outsourcing, perhaps it is time to consider why Americans are not better suited for such jobs and how to better match them with the jobs currently available to them.

Unemployment numbers are not the only measure of a vibrant jobs market. Perhaps it is time to refocus the dialogue. US job growth is important, but without a labor pool trained and experienced for those new jobs, they will remain unfilled. Renewing the focus on vocational training academic cooperation with industry will go a long way in better preparing Americans to go to work. Likewise, common-sense international partnerships and trade policies will enable a better matched workforce in the US to better compete on a global scale.

Due to aggressive political rhetoric from incoming US President, Donald Trump, many executives in North America are concerned that NAFTA may be overhauled or renegotiated. Trump has made such a proposition central to his campaign, yet there are few decision makers actually pushing for NAFTA renegotiations. Not all member nations support such a drastic move.

US Most Likely to Support NAFTA Renegotiations

Donald Trump’s new government may make the push for NAFTA renegotiations. His campaign has certainly been the primary catalyst for reconsidering the North American Free Trade Agreement. His supporters fear Mexico is taking their jobs, thanks to the agreement, which reduced or eliminated virtually all tariffs between the three North American countries when it was implemented in 1994. Yet the US Congressional Research Service concluded in 2015 that the overall impact of NAFTA on the US was negligible:

In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters…The net overall effect of NAFTA on the US economy appears to have been relatively modest, primarily because trade with Canada and Mexico accounts for a small percentage of US GDP.

Canadian and Mexican Sentiment Mixed

Canada seems poised to go along with the US either way, but Canadian Prime Minister, Justin Trudeau, is certainly an advocate for trade. He has only gone as far as saying Canada is open following the US lead on this in the interest of modernizing the deal. He recently commented:

I think it’s important that we be open to talking about trade deals…If the Americans want to talk about NAFTA, I’m more than happy to talk about it.

But NAFTA renegotiations are certainly not on the table for the third member of NAFTA, Mexico. The 2nd largest economy in Latin America has made it clear they are not in favor of NAFTA renegotiations, but that they would consider discussing the agreement in the interest of better appreciating it. Economy Minister, Ildefonso Guajardo, recently stated:

We’re ready to talk so we can explain the strategic importance of NAFTA for the region…Here we’re not talking about… renegotiating it, we’re simply talking about dialogue.

80% of Mexico’s exports go to the US, and in many ways, the US relies on Mexico as a regional partner more than a competitor. In 2015, the two countries exchanged approximately $531 billion USD in goods. Mexico is the United States’ 3rd largest trading partner, and Donald Trump’s administration may well discover that unravelling such an integrated and complex relationship is not worth the trouble. Canada seems ready to support the US decision either way, but Mexico would pose a formidable obstacle in the road leading to NAFTA renegotiations.

To help our readers keep up with the latest issues on NAFTA we invite you to visit the BLOG on our parent company’s website; http://tecma.com

Mexican economic ties span the globe. The Latin American country aggressively pursues trade relationships with numerous countries, resulting in a trade network that rivals any in the world. In recent years, Mexico has sought to increase economic relations with Asian countries, including the small Asian country of Vietnam.

Mexican Economic Ties with Vietnam

As Mexico becomes more independent of NAFTA and the US, economic relations with Asian countries like Vietnam become more robust and mature. Mexico has had diplomatic relations with Vietnam since 1975 when the country was first liberalized. The two countries are both members of several important economic institutions, including:

• Asia-Pacific Economic Cooperation (APEC)
• Forum of East Asia-Latin America Cooperation
• Trans-Pacific Partnership Agreement (TPP)

Mexico and Vietnam share many commonalities. Both countries offer global markets young and skilled workforces, inexpensive manufacturing labor, and growing middle classes. Both having recently entered the relatively new TPP agreement, the two countries believe a promising partnership lies before them. Trade between the two countries is rising at an annual rate of approximately 40%. Last year, bilateral trade in the first quarter was valued at $776 million USD. As Mexican economic ties with Vietnam strengthen, the two countries will increase their mutual trade and investment even further. Currently, Vietnam’s primary exports to Mexico include:

• Electronic devices and parts
• Leather footwear
• Seafood products
• Transport vehicles
• Rubber

And Mexico’s primary exports to Vietnam currently include:

• Computers
• Electronic parts
• Animal feeds
• Heavy equipment
• Metals

Mexican Economic Ties Worldwide

Mexico’s economic ties with Vietnam and Asia are no exception. Mexico has made international trade and free trade agreements a top priority for several decades, and especially the past few years. Most notably, Mexico is a signatory to the North American Free Trade Agreement (NAFTA) with the US and Canada. In many ways, that agreement is their most significant and important. But Mexico is not defined solely by this one agreement. In fact, Mexico’s trade network is increasingly global, including:

• Free trade agreements with 45 countries
• Reciprocal Investment Promotion and Protection Agreements (RIPPAs) with 33 countries
• Nine Economic Complementation and Partial Scope Agreements within the Latin American Integration Association (ALADI)

Additionally, Mexico is a member of important conventions like the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), and the expansive Trans-Pacific Partnership Agreement (TPP). These memberships and agreements offer Mexico and her international investors access to approximately 60% of the world’s GDP and vital consumer markets in North America, Europe, and Asia. Mexican economic ties extend far beyond the US and NAFTA. The country is increasingly becoming an independent trading partner of choice, offering companies in the US and around the world preferential access to world markets more now than ever.