May 16, 2014
On the 20th anniversary of the North American Free Trade Agreement, it's easy to see that Mexico has really flourished. But today's success is not a guarantee for tomorrow's prosperity. Being a low-cost leader in manufacturing is not a long-term plan for survival. Just ask China.
I recently came across this editorial feature in Forward, the official publication of the Metals Service Center Institute. “NAFTA at 20” looks at what has occurred under the North American Free Trade Agreement and what remains to be done. The trade treaty appears to have done OK for the entire continent, but that only can be said given the fact that China emerged as a manufacturing monster during that time. “Team North America” provided a nice balance to “Team Asia” as the world’s multinational companies decided where it made sense for them to set up manufacturing operations.
Just look at the new Learjet 85 mentioned in the article. The jet’s engine is designed by U.S. firm Pratt & Whitney and built in Canada, while the fuselage is built in Queretaro, Mexico. The business jet is then brought together in Wichita, Kan., where final assembly takes place. That type of cross-country manufacturing effort would have been impossible 20 years ago. Now it’s not that unusual.
Automobile, aerospace, and medical device manufacturers are finding a home for manufacturing in Mexico, where they are making parts or final products shipped to the rest of North America or, in some instances, to the rest of the world. The manufacturing fortunes for NAFTA’s southern-most participant has been forever changed.
This was noticeable at the most recent FABTECH® Mexico in Mexico City, May 6-8. It was the largest tradeshow of its kind to date in the country, and show organizers expected more than 500 exhibitors spread over 100,000 square feet of show floor.
The exhibitors know that the Mexican manufacturing market is ripe for expansion. The OEMs, such as Whirlpool and John Deere, have been in Mexico for years, but new OEMs like Nissan and Mazda are joining the crowd. As the OEMs’ presence grows, the supply chains grow with them. Entrepreneurs that once worked for these OEMs strike out on their own to start their own tier metal fabrication businesses. U.S.-based companies set up shops to support customers with operations in Mexico. This is a dynamic and underdeveloped manufacturing economy on the doorstep of the U.S.
When I attended my first FABTECH Mexico about five years ago, the technology on the show floor was dominated by plasma cutting machines and basic equipment, such as shears and simple press brakes. That’s changed. Today you see fiber laser cutting equipment, robotic welding cells, and press brakes with advanced controls. Mexican metal manufacturers aren’t just interested in used equipment from the U.S.; they want the latest technology to help them remain competitive globally.
Where does that leave the U.S. and Canada 20 years after NAFTA? I’m not sure it matters, especially with the rise of global sourcing and China as a dominant economy. Both countries have bled manufacturing jobs, but both also have enjoyed the fruits of low-priced goods. (Have you seen the prices of televisions recently?) Both countries still are figuring out their place in this economy, but if recent reshoring of work from China is any indication, Mexico may have the most to worry about. Being a low-cost-labor leader is only a temporary plan for success; there’s always someone around the corner waiting to do it for a buck less.