Future prospects for Mexico – Jan. 2017

Serina Kurahashi

Serina Kurahashi, lives in Querétaro, Mexico

Already things are unsettling.

Now that I live south of the border, it’s amazing (and by amazing I mean terrifying) just how much the U.S.A. can actually affect the daily lives of normal citizens here.

A Trump presidency can mean many things for Mexico – being forced to pay for a wall they don’t want, a decrease in Mexicans immigrating legally or illegally, and increased economic and political instability – but I’m going to base my answer off my area of experience – the automotive industry and manufacturing jobs.


ECONOMIC IMPACT

As the probability of Trump winning the election became more evident, the value of the Mexican Peso began to decline at a notable rate. Back in 2014 when I first arrived to Mexico, 1 US dollar was around 13 pesos, but as of the moment of writing this answer, January 18th, 2017 it is at 21.92 pesos.

This is apparently the highest it’s been in the past 40 years. [1]

Of course Trump isn’t single-handedly responsible as various other factors are involved, but he did play a significant role by taking a tough stance all throughout his campaign, proposing “slapping tariffs on goods made in Mexico, ending the free trade agreement NAFTA, taxing cash remittances from America to Mexico, and building a wall along the border  [2]”, effectively scaring off investors.

Meaning when Clinton lost, I lost too. My entire savings lost 10% of its value overnight and continues to slowly decline to this day.

Personally, this sorta sucks, but it’s the least of my worries.

What I’m more concerned about is the fact that this terrible USD-MXN exchange rate will make Mexico significantly less attractive for foreign investors as well as companies considering branching out here.

This leads me to my main point –

THE AUTOMOTIVE INDUSTRY

Trump has been on a roll attacking automakers, starting with Ford, then GM, then as of this year even targeting a non-American automaker, Toyota.

I feel very strongly about this as I work in Mexico, in the automotive industry, in a Japanese company that could have directly benefited from Ford’s now cancelled plant and could benefit from Toyota.

So forgive me since this is going to be long, but I feel it crucial to explain the details for me to be able to provide a clearer picture of the kind of impact Trump could potentially have here.

I work in a plant that makes auto-parts for major American, Japanese, and European automakers. Our headquarters is in Japan, and I joined the “Mexico Project” from even before construction here started. So, while not by any means perfect, I have a pretty good grasp of how a new company is started overseas.

And let me tell you, it takes a lot of friggin’ work.

It involves months, sometimes years of planning and research, feasibility studies, market analysis, long discussions with existing customers, dozens of visits to potential construction sites, numerous tedious negotiations with local governmental officials and suppliers, months of engineering, testing, and finally a whole bunch of hiring and training before a new plant can be up and running.

And that’s only part of it.

Which means, by the time normal citizens hear about a company’s decision to open a new plant in another country, a large number of people have already been involved and have already made additional plans on the assumption that the company would follow through.

So when a company like Ford suddenly cancels a $1.6 billion dollar investment, it leaves behind a long trail of broken promises. It throws everyone off balance.

In the case of Toyota, they already started construction last November, which means they are even further along than Ford was, and even more people would be impacted should they pull out. My friend already works there so he would lose his job.

When news broke on the 5th of Trump now targeting Toyota, Akio Toyoda, CEO of Toyota, said he has no plans to reconsider as of the moment, stating Toyota “has a responsibility to hire and serve the local community, now that things have already been decided”.  [3]

Toyota USA also issued a statement, making clear no plans for reversal.

Nonetheless, my colleagues and bosses are concerned that Toyota may end up modifying or reversing their plans.

One of my colleagues was especially worried, saying, “I really hope they don’t cancel, since Toyota would benefit my hometown in all aspects, especially since there aren’t many companies there. It would also contribute to Mexico’s economy, since a lot of sub-suppliers would come to Mexico for Toyota”.

There is an informal saying among Japanese in the auto-industry that “Where Toyota comes, a village follows”, describing how dozens of new companies and businesses pop up when Toyota arrives.

Toyota’s withdrawal would mean billions lost in investment not only by Toyota but also by their sub-suppliers, relevant businesses, and in the shattered dreams of hundreds of Mexicans who are or were eagerly awaiting to be hired.

The attack on Toyota also puts Nissan, Mazda, and Honda in danger, all which export a greater percentage of vehicles to the U.S. from Mexico than Toyota does.

Vehicles made in Mexico comprise roughly one-quarter of Nissan’s total U.S. vehicle sales […] compared with around 30 percent for smaller rival Mazda, but less than 10 percent for Toyota and Honda.

Japanese automakers together produced around 1.4 million vehicles in Mexico in the year ended March, nearly 40 percent of the country’s total output. […] [T]hey plan to ramp up production to 1.9 million by 2019.

Carlos Ghosn, Nissan and Renault SA CEO commented regarding the matter:

“What we need to explain more clearly (to Trump) is that most automakers are not cutting production capacity or jobs in the United States to make Mexico an additional production hub.”  [4]

Even so, it is reasonable to assume Trump will also target Nissan and Daimler, which “have signed a joint venture agreement and are investing over $1 billion in a new plant that is expected to begin production in 2017 with an initial capacity of 230,000 units.”

Former Mazda Motor Mexico CEO Keishi Egawa has been quoted as saying:

“Mexico is one of the most attractive manufacturing locations. The potential for growth in Mexico is still tremendous.”  [5]

And so it is.

Mexico is the fourth-largest exporter for the automotive industry, only after Germany, Japan and South Korea. Mexico is almost reaching Japan to become the number 2 supplier of vehicles to the U.S. market.

To support this information, in 2014, Mexico manufactured four out of every 100 cars in the world. With this speed of growth in the industry and attraction of investments, Mexico could reach the 4th position in automobile producers after China, USA and Japan.  [6]

However, Trump can effectively halt the momentum of Mexico’s growing auto sector depending on how he plays his cards, as America undeniably holds the upper hand.

According to the Mexican Automobile Industry Association, in the first quarter of 2015 the U.S. received 70% of all cars exported from Mexico.  [7]

As vehicle exports account for “18.3 percent of Mexico’s manufacturing sector and 3.2 percent of national GDP”, if Trump succeeds in negotiating with OEMs like GM, Toyota, and the other dozen that have settled or plan to expand in Mexico, Mexico will fall into the shadows of the auto industry. And that’s not even taking into consideration the heavy duty vehicle production here of trucks and trailers.  [8]

On Sunday Trump continued his consistent tirade against automakers in Mexico, this time singling out German automaker BMW:

“I would tell BMW, if they want to build a factory in Mexico and sell the cars in the U.S. without paying a 35 percent tax, then they can forget about it”

BMW has so far taken the strongest stance against Trump, expressing clear skepticism that this would ever be possible.

“We take the comments seriously, but it remains to be seen if and how the announcements will be implemented by the U.S. administration. The U.S. Congress will probably show “substantial resistance” against the duty proposals.”  [9]

Trump has proved he will not only hold American automakers accountable for manufacturing in Mexico; he will target any automaker that exports cars to the U.S.

He has gotten a start with Japan and Germany – it is only a matter of time before he covers all the rest.

I haven’t been able to confirm this with a valid news source, but on Sunday my Korean student told me that Kia was cancelling plans of expanding their plant in Mexico for fear of what Trump may do.

While Mexico offers benefits incomparable to the U.S. (which I will explain in the next point), with the mere threat of a “35% border tax”, numerous automakers may bail without Trump ever having to take direct action.

OTHER MANUFACTURING SECTORS

It’s not only the auto-industry in Mexico that Trump has a qualm about.

Trump has also declared numerous times during campaign rallies that he is boycotting Oreos.

Trump in Virginia, Oct. 14: “Nabisco. Oreos. Right, Nabisco? Right? Oreos! They’re closing their big plant in Chicago. They’re moving it to Mexico. I’ll never eat another Oreo again. Ever. Ever! So I’m going to talk to them. I don’t want their cookies made and sold there. I just don’t want it. It’s unfair to us. Chicago is losing this large plant. It’s going to another country.”  [10]

Here’s some other American corporations with plants in Mexico that he could decide to boycott in the future:

[Image edited from: Global Companies Succeeding with Mexico Manufacturing]

I should supplement it’s highly unlikely as of now that any American corporation would just pack up and leave Mexico simply because they were targeted by Trump. American companies move plants to Mexico because of the low labor costs, longer work hours, and numerous free trade agreements that make it all possible.

An average line operator here works around 9.5 hours a day and earns about 100 pesos, which is less than 5 USD. The current minimum daily wage is actually even lower at 80.4, although prior to January 2017 it was at 76.4 pesos.

When I visited manufacturing plants in Ohio and Kentucky, I was told the minimum wage for operators was 15 USD an hour, which would be 120 USD a day for 8 hours. That means for every operator you hire in the U.S. you could hire 60 in Mexico.

Let’s compare.

If we assume both plants hired 100 operators and worked 20 days per month, by the end of the month the plant in Mexico would have saved 230,000 USD in comparison. As you can imagine, it really adds up after an year.

If Trump can modify or repeal NAFTA and impose high tariffs that make this difference virtually zero, American companies will find less benefit in moving plants to Mexico or may even possibly move back.

However, another issue, perhaps even harder to solve still exists, which is the “high” minimum wage in America.

In the two manufacturing plants I visited, I noticed there were fewer operators than we have in Mexico for the same production lines. Some areas even looked deserted. The supervisor told me that more and more processes are becoming automated because on the long run they cannot afford to be paying high minimum wages to the operators. He even showed me a new line to be installed that would be completely automated.

Therefore, I struggle to see how Trump can realistically offer enough incentive (or deterrent) to companies abroad, but if he does, Mexico will take a huge hit as the U.S. receives 80% of their exports.

They include, in addition to oil and cars, flat-screen televisions, mobile phones, computers and airplane components. Total Mexican exports added up to $397.5 billion in 2014 — 85 percent of them from manufacturing.  [11]

POSSIBLE REPERCUSSIONS FOR THE U.S.

So now onto the more relateable stuff – how has Trump affected the average Mexican, and what does this mean for the U.S.?

As you can most likely imagine, Mexicans are not pleased. It’s not fun hearing your country sends rapists and criminals, that you have to pay for a wall, and that you’re stealing jobs from well-deserving people.

Trump’s unpopularity (at least where I live) has gotten to the point where I could go buy some street tacos and the next moment find myself listening to criticism and complaints from the vendors regarding Donald Trump.

During the campaign I saw images such as this:

Being circulated on Facebook, urging Mexicans to boycott Home Depot since the founder Bernie Marcus supports Donald Trump and will be responsible for the construction of the wall.

Now that Trump has won the election, I’ve seen Mexicans take it a step further, with messages shared not only on Facebook by the average citizen but also on radios and podcasts by slightly more influential figures, urging citizens to boycott not only Home Depot but all American corporations, such as Starbucks, Walmart, Office Depot and McDonald’s, to send a clear message that they will not support America while Trump is president.

Personally I have not seen much unity in these boycotts, since when I went to Walmart at the beginning of this year there were 20 minute lines for every cashier, but more people may get behind these boycotts should Trump follow through with his campaign promises.

This wouldn’t really affect the average American citizen living in America, but major American corporations may be forced to pull out of Mexico as a result, weakening their global presence.

However, an even more severe possible repercussion for the U.S., I believe, is increased insecurity as a direct result of Mexico’s safety.

Remember that photo I posted at the very beginning?

That’s one of the many gas stations across various states in Mexico that have been set on fire to protest the nationwide 20% gas price increase as of January 1st.

While many peaceful protests occurred nationwide (such as this 360 video shows), there have also been many that have selfishly taken advantage of the public’s discontent, further stirring chaos and using that as an excuse to break into stores and steal goods. This has mainly occurred in locations such as Mexico City, Chiapas, Hidalgo, and Veracruz.

Things have finally started settling down, but it was rather hectic at the beginning of this year, with public hysteria and mounting fear that supermarkets in your neighborhood could be targeted next too.

Everyday with more news pouring in of more incidents, people around me began to grow increasingly uncomfortable as well. “But there’s no way such a thing would happen in a safe city like Queretaro!” was the common phrase I heard.

And then on January 12th it happened. News quickly spread within our company that a nearby supermarket had been raided by a group of armed men, and that simultaneously there was a violent riot going on downtown. This led to a direct order from our president to go straight home with no overtime and to avoid leaving our house. I cancelled dinner plans I had that day – worried, really worried for the first time since moving here about the future of Mexico.

The next day government officials of Queretaro announced that the “raids” and “riots” reported the day before were fake news started on Facebook and shared by paranoid people who did not bother to check the source. Yet on the other hand there are people that say they saw it. It’s a frightful feeling when you don’t know who you can trust – the ordinary people, or the state government?

Now you might be thinking, “If gas price raises aren’t a direct result of Trump, why are you even mentioning this?”

I mentioned it to illustrate a point.

To illustrate how quickly things can boil over and get violent and chaotic in a country with a fragile economy, visible corruption on every level, and a high distrust for the government and the president himself.

To illustrate how something like a “20% gas price increase” that most likely wouldn’t wreak major havoc in the U.S. can and does cause nationwide disruption in a country where many people only fill their gas tanks 3 dollars at a time because otherwise they cannot afford it; in a country where there is an astonishing gap between the rich and the poor.

Meaning, even a decision considered “harmless” can have unforeseen effects.

Trump has the power to directly improve or worsen the situation in Mexico, and in the case that the economy goes down the drain as a direct or indirect result of his actions, the turmoil and high unemployment may lead to increased drug trafficking, crime, violence, and illegal immigration.

Whether one likes it or not, as long as the U.S. is directly connected to Mexico by land, the U.S. will always face some sort of repercussion from the state that Mexico finds itself in.

It doesn’t matter how great or how high of a wall is built – if things really do get bad here; if drug-related crimes do go soaring up once again despite having been on the decline from 2011  [12], Mexicans will find a way to seek refuge illegally in America, running contrary to what Trump wanted to prevent in the first place.


CONCLUDING THOUGHTS

That being said, I do see a possibility, albeit small, in which Mexico could ultimately benefit from the Trump presidency.

More independence.

Based strictly on social media trends, I believe Mexicans can be largely divided into two groups when it comes to Donald Trump:

  1. Those that believe that the corrupt government should be blamed for Mexico being so susceptible to Trump
  2. Those that believe that Mexicans themselves should be blamed for Mexico being so susceptible to Trump

This widely shared image says:

Mexico’s problem IS YOU ….

  • Who doesn’t like to read.
  • Who doesn’t like to work.
  • Who lives waiting for Friday.
  • Who only thinks about parties and booze.
  • Who only talks about soccer and soap operas.
  • Who wants everything free from the government.
  • Who thinks you’ll make a change yelling “We want them alive” or “Out with Peña”
  • Who doesn’t study and wants an executive level job with the salary of a politician

Mexico is a country with vast beauty, abundant natural resources, and millions of hard-working people.

Mexico actually has the potential to become a strong economic power without depending on the U.S. – all that is lacking is the burning urgency, motivation and passion from the majority of the population including top politicians to succeed, something that may be ignited by Trump’s emergence.

On the other hand, Donald Trump and Bernie Sanders do address valid concerns when they argue that better deals need to be negotiated to bring back manufacturing jobs to America and revitalize the working class.

Last year when I visited Kentucky I saw with my eyes for the first time the situation in certain rural areas of America. Houses were old, streets were deserted. According to locals the younger generation moved to larger cities to get jobs. A significant percentage of operators working the lines were elderly – some have even been working in the same plant for decades since there simply were no other options available. And despite minimum wages considered “high” from an administrative perspective, many of these operators leave their shift only to go home to work on their farm in order to make a decent living.

I gave a presentation of our plant in Mexico to a group of supervisors and managers from various departments. Upon finishing I received an unexpected question:

Will you be taking away any of our production lines?

I realized I had been naive to have not even considered the fact that this was a major concern even for people working in the same company.

Just because a certain trade agreement has been in place for over 20 years doesn’t necessarily mean it should be left untouched, and Trump for sure is within his right to demand changes as he sees fit for the people of the country he’ll serve.

[See: NAFTA: What it is, and why Trump hates it]

However, if painstakingly meticulous consideration is not given to any changes to be made in current trade agreements and policies, the results could be disastrous – both for Mexico and the USA.


Footnotes:

[1] TradingView: Mexican Peso vs. US Dollar (1972 to 2017)

[2] CNN Money: Mexican peso plunges to all-time low

[3] Japan Financial Times: Mr. Trump criticizes Toyota’s construction of Mexican plant “NO WAY!” [JP]

[4] Reuters: As Trump targets Toyota over Mexico, Nissan faces bigger risk

[5] Automotive News: Mexico auto exports forecast to hit record in 2015

[6] Mexico as a New Capital of the Automotive Industries

[7] OEC: Mexico (MEX) Exports, Imports, and Trade Partners

[8] 2016 Top Markets Report Automotive Parts Country Case Study

[9] German Automakers Push Back Trump’s Warning Over Mexican Plants

[10] Inquisitr: Trump Is Going To Regret His Oreo Boycott Once He Hears About These Brand New Oreo Flavors

[11] Bloomberg: Cars Drive Mexico Economy as Companies Invest $20 Billion

[12] Mexico Peace Index 2016 [SP]

Footnotes

[1] Mexican Peso | 1972-2017 | Data | Chart | Calendar | Forecast | News

[2] Mexican peso plunges to all-time low

[3] トランプ氏、トヨタのメキシコ工場建設を批判 「ありえない」

[4] As Trump targets Toyota over Mexico, Nissan faces bigger risk

[5] Mexico auto exports forecast to hit record in 2015

[6] Mexico as a New Capital of the Automotive Industries – Thomson Reuters Tax & Accounting

[7] Mexico as a New Capital of the Automotive Industries – Thomson Reuters Tax & Accounting

[8] http://trade.gov/topmarkets/pdf/…

[9] German Automakers Push Back Trump’s Warning Over Mexican Plants

[10] Trump Is Going To Regret His Oreo Boycott Once He Hears About These Brand New Oreo Flavors

[11] Cars Drive Mexico Economy as Companies Invest $20 Billion

[12] http://economicsandpeace.org/wp-…

1 comment to Future prospects for Mexico – Jan. 2017

  • perachtis

    One consideration that does not get air-time is what will happen to the cost-of-living situation if the bashing by Stultus of Mexico continues; namely the value of the peso will decline relative to the dollar, which would aid would-be expats who move to Mexico. The peso – dollar ratio was in the 15-17/1 range in years gone by, but now it’s 20/1, which means the average social security recipient who relocates to Mexico with the typical $1,4500 SS monthly check being worth $29,000 Mexican – which is approximately equivalent to the net monthly income for a Mexican college professor or medical doctor.

    And it will also make in sitio Mexican labor cheaper for US companies. And some dummies thought the Mexican immigrant issue was all about terrorism. Suckers !

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