Pacheco: Border blockades, wages test U.S.-Mexico trade

Two developments occurred recently at the U.S.-Mexico border that we should monitor carefully, as they could affect cross-border trade in the future. 

The first has been the recent sporadic closures of commercial lanes at major ports of entry along the border by Mexican protestors over roughly a two-week period. A part of the protesters was comprised of people involved in Mexico’s farming and ranching community, who are concerned that Mexico’s new water laws will prevent them from accessing wells and other water supplies for their operations. The other part of the protesters were people involved in Mexico’s transportation industry who are raising concerns over increasing violence on Mexico’s highways. 

The blockades stranded thousands of cargo deliveries, and according to reports by Mexican chambers of commerce, there were $25.8 million in losses every hour that the commercial lanes were closed. It was reported that during the blockades the maquiladora (twin plant) industry in Juarez had to idle approximately 30,000 employees. Many plants came close to running out of supplies on both sides of the border. Some companies reverted to paying airfreight companies to fly their products into the U.S. Even though the blockades have ended, it could take weeks for the cross-border supply chain to get back to normal. 

Mexico is a democracy and its citizens have the right to protest policies or situations they are against. On the other hand, Mexico is a country that relies heavily on foreign trade, especially with the U.S., to power its economy. The Mexican government was very patient with the protesters and did not use force to clear the commercial lanes at the ports of entry. 

However, to see companies in Mexico have their operations disrupted or on the verge of being put out of commission was frustrating and highly disruptive to cross-border trade between the U.S. and Mexico. The disruptions are not only felt in Mexico, but in the U.S. where many of these products and supplies are destined. More than 70% of the trade between these two nations is transported by truck. 

What worries me is that if the most recent and future protesters see the blockades as having been successful in either achieving their goals, or having their voices heard, what is to stop this tactic from being used time and again in the future? This puts the Mexican government in a very precarious situation. It does not want to be viewed as being overly aggressive in clearing protesters out of the way — when this happens, inevitably somebody gets hurt. However, at the same time, it can’t sit back and watch billions of dollars of trade it depends on stalled. 

Furthermore, how does this affect companies that are considering setting up operations in Juarez or the general border area? Do they have second thoughts based on the chance that more blockades could take place in the future based on other gripes? Failing to take action on the part of the Mexican government could hurt its ability to attract foreign direct investment, which creates new tax bases, opportunities and, most importantly, jobs.

The other development, and its potential effects that need to be monitored closely, is the recent announcement by Mexico’s National Minimum Wage Commission’s (Conasami) pertaining to the minimum wage. Conasami is comprised of representatives from labor unions, government officials and different business sectors. On Dec. 3, Conasami announced that it will be raising the minimum wage in Mexico’s interior by 6.5% to 315.04 pesos per day. In the northern border region, it will be raising the minimum wage by 5% to 440.87 pesos per day. Professional minimum wages will increase by 13%. These new rates will go into effect on Jan. 1. 

New industrial construction in Mexico has been slowing down because of the current economic uncertainty related to the Trump administration’s threat of tariffs on imports into the U.S., and due to higher minimum wages that were previously raised in Mexico’s border region. Now that minimum wages are going up again, does this continue to erode the competitiveness of Mexico’s border region compared to other regions in the world?

Mexico has always struggled to manage fiscal and monetary policy while making progress in its social policy. The Mexican government wants to improve the lives of Mexican citizens in its northern border region through the paying of higher wages, particularly by foreign companies operating in the maquiladora industry. 

The U.S. should also want workers in this industry to receive good wages. Nearly 20% of retail sales in border cities such as El Paso, Texas, are accounted for by Mexican shoppers, many of whom are working in the maquiladora industry. However, at what point does it become less attractive to produce in a city such as Juarez versus a place such as Vietnam? 

The upcoming year should give us a good idea of what this will do to cross-border trade, and whether more production plants in Mexico will be looking at increased automation as an option. 

Jerry Pacheco is the executive director of the nonprofit International Business Accelerator. He can be reached at (575) 589-2200 or jerry@nmiba.com.