SILAO, Mexico — Disruptions in the global supply chain caused by the coronavirus pandemic create an opening for this nation to grab manufacturing business from Asia, but continued cartel violence along the border and in the growing industrial heartland here now threaten that opportunity.
One executive in North Texas with operations in the state of Guanajuato said U.S. companies worry about the constant threat of kidnappings, saying “there is a disconnect between what the government says it can provide and what it can actually do” when it comes to safety.
The executive, who lacked permission to speak publicly and asked not to be identified, added, “Imagine if those threats didn’t exist. The incentive to invest millions more would be insane.”
Mexico is the U.S.’s No. 2 trading partner with $538 billion in annual cross-border trade. But worldwide lockdowns and labor shortages in the manufacturing, shipping and transportation industries have some economists encouraging U.S. manufacturers to shift more of their outsourced work from far away southeast Asia, where China is the No. 1 U.S. trading partner, to the U.S.’s neighbor to the south.
More is at stake than ever now that the new trilateral trade agreement between Canada, Mexico and the U.S. requires up to 75 percent of all auto components for cars sold in the U.S. be made in North America.
“This is a great opportunity for Mexico, but we all have to be on the same page on everything from policy to security,” said Jorge Arturo Oliveros, a member of an industrial association who works to attract foreign executives to Guanajuato, Mexico’s growing automotive manufacturing heartland.
U.S. companies have invested billions of dollars in manufacturing throughout Mexico, particularly in this region where Mazda, Honda, Toyota and GM all house huge plants just in Guanajuato, historically a picturesque state that draws tourists to idyllic small towns. In 2018, the state produced about a fifth of the nearly 4 million cars and light trucks foreign automakers produced in Mexico.
“We have to work together as a society to root out crime because we can’t afford to allow investors to grow impatient with Mexico, especially with such an opportunity before us.”
This should be Mexico’s shining moment, but it’s not — at least not yet. Mexico has reached record levels of homicides with more than four times greater than 2007. Last year, more than 34,000 people nationwide died violently, most of them at the hands of organized crime, officials say. (There were 21,570 reported homicides in the U.S., a nation with more than 2 ½ times as many people as its neighbor to the south.)
Recent travel advisories by both the U.S. and Canadian government cite risks attributed to high levels of violence and the presence of organized crime in states that include the border states of Chihuahua, Nuevo León, Sinaloa, Tamaulipas, Sonora, Coahuila and states in the interior that include Durango, Colima, Durango, Michoacán, Nayarit, Morelos and Guanajuato.
“Mexico’s security is worrisome and I don’t see a clear strategy to restore trust that things will get better anytime soon,” said Raul Benitiz, one of the leading security experts at the Autonomous National University in Mexico City.
“Ten years ago investors were not spooked by Mexico because they knew where the violence was concentrated,” said David Shirk, chairman of the Department of Political Science and International Relations at the University of San Diego and director of the Justice in Mexico program, which just issued its annual report on crime and violence in Mexico.
The problem is that today “you’re seeing a higher proliferation of lower level violence to more places in Mexico. The proliferation of these local and regional criminal outfits, is a real threat to ordinary people, and to business people, in many more parts of the country than it was a decade ago.”
In recent years, Guanajuato has been transformed from one of Mexico’s safest regions to one of the most violent. Last year, gangland killings and other violence claimed more than 3,000 lives.
The roads here in Guanajuato that run between magical towns and industrial cities are filled with the wonders of Mexico’s idyllic countryside. But they’re also a reminder of the troubling myriad of security challenges that threaten the region’s supply chain.
The security problems are spotty. Some safe communities, like San Miguel de Allende, remain a magnet for Americans and other retirees. But, for example, a travel alert by the Canadian government urges its citizens to “avoid non-essential trips on Highway 45 between León and Irapuato” as well as “the southern area and including Highway 45 D, between Irapuato and Celaya” out of fear of extortions, kidnappings and killings.
The government puts a brave face when publicly addressing the ongoing drug cartel violence problems. One Mexican official in the area of security who lacked permission to speak publicly and asked not to be identified concedes “issues remain, but we’re working hard to restore security across the country.”
The official also points to U.S. gun manufacturers, which the Mexican government has sued, for the majority of the estimated 250,000 firearms smuggled annually to Mexico from the U.S.
Guanajuato, especially its auto industry, is closely intertwined economically with Mexico’s maquiladoras, factories hundreds of miles north on the border along the Rio Grande, and to the economies of Texas, Michigan and beyond. U.S. jobs in everything from manufacturing, warehousing, railroads to trucking depend on Mexico, as parts for vehicles, medical devices, electronics, computers and countless other products go back and forth across borders. What’s good for Mexico is great for the border region.
Mexico is Texas’ biggest trading partner, with more than $450 billion in cross border trade, creating tens of thousands of jobs for Texans.
There’s potential for more, say economic development leaders and business executives who are pushing for “reshoring” or the return of companies that left for Asia back to North America, including Mexico and the border.
“The border has never had a brighter future,” said Jon Barela, chief executive officer of the Borderplex Alliance, which promotes economic development. Over the next three to five years some 100,000 new “reshoring” jobs will be created along the border, he predicts. Already, one out of every four jobs is tied to manufacturing in Ciudad Juarez, across from El Paso.
“It seems like every month we set new benchmarks for business activity and business leads,” he said. “One-third of those leads now are reshoring opportunities from China or other parts of Asia. Five years ago, we didn’t have one lead reassuringly.
“I’ve been talking about reshoring for several years. There is now, I think, a perfect storm. We’re moving into what I now call hemispheric globalization, consolidation and supply chains, here in North America, and I believe that will continue.”
Emma W. Schwartz is president of the Medical Center of the America Foundation in El Paso, a nonprofit organization, says the moment is “huge, not just as an opportunity for everyone but also a wake-up call.”
Schwartz oversees a cluster of medical companies mostly in Juarez, with a workforce of about 40,000, and some 52 suppliers to the medical device manufacturing industry on both sides of the border. She’s been seeing the shifting dynamics since the pandemic as “Mexico has become one of the largest exporters of medical devices and supplies and the main consumers that consume these goods live in the United States.”
Now, she says, after years of consumers being hungry for the lowest prices they can get for goods, “We need to have a pretty serious discussion as a nation about our priorities…. The more these global supply disruptions impact us, the more serious we need to be about creating solutions.”
She said that includes maintaining a vital, healthy workforce on both sides of the border. This summer, for example, El Paso County Judge Ricardo Samaniego led an effort to vaccinate tens of thousands of Juarez factory workers and others with unused Johnson & Johnson vaccines.
In July, workers were transported to the U.S. side of the border via an international bridge connecting Tornillo, Texas, Guadalupe, Mexico. The mass operation went smoothly, Schwartz said, but conceded that she and others were concerned about the safety of the workers on dangerous Mexican roads.
“We need to be much more strategic in our discussions with our Mexican partners that if we’re going to be making investments that will benefit both sides of the border, we need to make this as effective and safe as possible,” she said.
But in some places on the U.S. side, security is an “issue for Mexico. It’s an opportunity for us,” said Jerry Pacheco, president of the Industrial Border Association in Santa Teresa, New Mexico, which is across the state line from Texas and just north of the Chihuahua, Mexico border.
He said in the last 18 months at least three companies in Taiwan have signaled interest in a move to the area. Santa Teresa already has the sixth-busiest border crossing.
Pacheco said more than one million square feet are under construction for the Taiwanese companies and others. Asphalt roads have been replaced with concrete to keep up with rising truck traffic and he’s pleading with the U.S. Congress to approve an infrastructure package “because we urgently need it. We have to keep infrastructure ahead of development.”
“I’m not throwing rocks at Mexico because we need to work hand-in-hand,” Pacheco said. “But it gives us in Santa Teresa an opportunity to tell investors, ‘We’re safe here. Here you should not be afraid that you or your employees will get jumped or something else.”
In Laredo, Gerald “Gerry” Schwebel, executive vice president at IBC Bank, criticized staffing issues at many border crossings. He implored the U.S. government to hire more Customs and Border Protection workers and the Mexican government to improve security.
“We’re all part of the supply chain,” Schwebel said. “The Mexican government needs to work harder with the private sector to keep the flow of commerce that we have all worked so hard to grow, and strengthen it to create more jobs for people on both sides of the border. At some point, insecurity may be a bit of a cost too high for consumers.”
Cecilia Levine Ochoa, an industry leader in the assembly plants, known as maquiladoras and president of MFI International, a textile company, said the border narrative must go beyond chaos, conflict and crisis. She said one of the first steps to expanding trade relations with Mexico and increasing safety is for politicians to stop using the border as a hot-button issue to make political points.
“We have to rethink how we look at ourselves and one another and be proud of who we are, El Paso and Juarez” and not let outsiders define the region, Levine said. “We need to work toward an integrated ecosystem, and by this I mean the integration of our infrastructure, education, quality of life, and that means security” across borders.
While they wait for change that might bring more jobs and, most importantly, more safety in Mexico, many here sa anxiety reigns. Juan Jose Gonzalez of Guanajuato, waiting recently for a flight at the international airport in Silao, Guanajuato, spoke with no irony about the fear people here have at the sight of men driving around in white Toyota Tacoma pickups. The locals say they are a favorite ride for organized crime members.
“When you see those vehicles, you pray,” he said.
Two hours away, Toyota has a huge plant in Apaseo el Grande, where Oliveros works to bring in more investment. “I invite all investors to visit us, see for themselves our competitive edge, our quality,” he said. “But we realize we have a lot more work to do to keep their investments here.”