When NAFTA went into effect on Jan 1, 1994, the world’s largest free trade area was officially formed. The ability to move products with ease across borders allowed supply chains to become more efficient and increasingly intertwined.

In 2015, NAFTA trade reached $1.1 trillion USD, of which 20% was auto related. From those $230 billion USD, 55% came from auto parts and 45% from vehicles. Because of the highly integrated nature of the automotive industry supply chain, it’s not uncommon for some parts and components to cross borders up to eight times before being assembled in one of the three NAFTA countries.

Automotive manufacturing Mexico has transformed in recent years due to new technologies and changes in consumer behaviors, as well as challenges that have arisen in trade and geopolitical situations. Now, after years of negotiations and uncertainty, a new agreement has been reached—the USMCA (as it’s known in the US), CUSMA (as it’s known in Canada), or T-MEC (as it’s known in Mexico).

Automotive Manufacturing Mexico

So what does the USMCA mean for the automotive industry Mexico and in the North American trade block?

It establishes that vehicles assembled in the region be composed of 75% of regional content (an increase from 62.5 in NAFTA); of this percentage, 40% must come from employees earning at least $16 USD an hour; also, 70% of corporate purchases of steel and aluminum used by vehicle manufacturers are required to come from North America.

In April of 2019, the Mexican legislature showed its goodwill to comply with USMCA labor rules by adopting major labor reforms, including the establishment of a federal labor conciliation and registration center, as well as independent labor courts, and guidelines aimed at guaranteeing workers’ rights to participate in unions and to protect them against discrimination.

International companies in Mexico

In addition to changes resulting from the USMCA, the global automotive industry has been moving towards more cost-effective production. One of the drivers for this is the increasing investment required for R&D to comply with the new global auto trends, including automation, self-driving cars and electrification.

North America’s economic success depends on strengthening our regional trade partnerships. In order to maintain a regional bloc that is able to compete with the Asian and European blocs, we must work together to leverage our competitive advantages. This includes the strength of the American OEM’s, the innovation and flexibility of Canadian auto part manufacturers, and Mexico’s growing pool of specialized labor. All of these factors will allow us to become even more self-sufficient, while other regions continue to struggle to be cost-competitive within their own supply chains.

With the enactment of the USMCA, the US, Mexico and Canada, will be well positioned to compete in the global market. However, there is still work to be done. By focusing on forming strategic partnerships that will allow us to take advantage of economies of scale we can leverage the advantages each country has to offer and gain market share globally, benefitting all three countries. Now is the time to take advantage of the USMCA and start up business in Mexico.


By Mariana Ceniceros | Business development | American Industries Group®
Did you find this content interesting? Sign up for our monthly newsletter to receive more articles and infographics.

Subscribe

If you would like to find out more about this topic or are interested in receiving a complimentary business case analysis for your operation in Mexico, please fill out this form or contact us at:

US toll-free: +1 (877) 698 3905

CAN toll-free: +1 (844) 422 4922

start@americanindustriesgroup.com
Please note that we do not accept job applications here. If you are interested in applying for a position, please visit the following link: https://www.americanindustriesgroup.com/jobs/




Related posts

August 10, 2022
Competitive Advantages of Nearshoring in Mexico
Competitive Advantages of Nearshoring in Mexico
With large-scale disruptions in global business since the COVID pandemic and the changes resulting from these hard-won lessons, companies are focusing on increasing agility in production […]
August 8, 2022
Manufacturing in Mexico
The Great Resignation and Manufacturing in Mexico
Since the pandemic started, workers worldwide have quit their jobs in unprecedented numbers This trend, known as the great resignation, has added yet another concern to […]
July 28, 2022
Business Innovation: Key to Success
Business Innovation: Key to Success
Without a doubt, innovation allows a company to stand the test of time. Innovation in business aims to create added value for clients, shareholders, personnel, suppliers, […]
July 23, 2022
Mexico Labor Availability
Queretaro, Mexico Labor Availability and Outlook 2022
According to recent surveys and market data, the biggest challenges facing companies in North America today are rising costs, worker shortages, and supply chain issues. These […]
July 20, 2022
Saving taxes in Mexico
Two Ways Working under a Provider of Shelter Services in Mexico Can Help You Save on Taxes
In addition to the main incentive programs available to companies in Mexico that help businesses save money on export taxes, tariffs, and duties we discussed in […]
July 18, 2022
Invest in Mexico
Main Incentive Programs for Importing & Exporting Products to Mexico
There are programs and certifications international companies doing business in Mexico can apply for to save on their import and export taxes, tariffs, and duties. Though […]