Border Issues Update
Western Maquiladora Trade Association Meeting
On Wednesday, June 19, we attended the monthly Western Maquiladora Trade Association meeting and stayed updated on the latest border issues. Here are some key points to take into consideration:
- Mixed direct labor costs increased in the Tijuana manufacturing sector in Q1, up from $2.76 to $3.06 due to a doubling of the minimum wage and a large market-driven increase on skilled assembler wages. The higher salaries are leading to lower than usual turnover, currently averaging around 5% a month.
- The industrial sector is experiencing historical employment, with 237,000 total workers in the Tijuana Maquiladora sector. This is the most ever since the Maquiladora program was started in the 1960s.
- NAFTA 2.0 (the USMCA) is currently on hold in the United States Congress. Democrats are voicing concerns raised by the AFL-CIO that there aren’t enough protections for auto workers. They are seeking a side-agreement outside of the main trade agreement, which cannot be altered. Mexico and Canada are ready to ratify the agreement.
- The annualized inflation in Mexico is relatively low this year, averaging 4.28%. In comparison, inflation is slightly higher in Tijuana at 6%. This provides a great opportunity to lock in forward contracts.
- Bank rates are also holding steady, with the internal bank exchange rate hovering at 8%. With the U.S. Federal Funds Rate at 2.25%, there is a great opportunity for investors looking south of the border. Mexico’s economy continues to grow, although that growth is showing signs of slowing, especially in new hires.
- Regarding the recent threat of blanket tariffs on Mexico by President Trump, information has come out regarding how serious the threat really was. According to U.S. Customs and Border Patrol, no instructions were ever handed down indicating a pending change to the tariffs. When rates change, the agency has to reprogram all their computer systems with the new instructions, and even the weekend before the proposed rates were to go into effect they had received no orders. While it is impossible to get into President Trump’s head, it was likely a scare tactic in reaction to news footage aired that morning on Fox News of a large 1000 person migrant group crossing the border in Texas to seek asylum.
- Regardless of intent, the threat had ramifications on businesses doing business across the border, as the average company in Tijuana faced the possibility of a half million dollars in additional monthly tariffs.
Manufacturers in Tijuana and San Diego remain positive when it comes to the future of the countries’ relationship. Both are looking to continue growing their businesses within Mexico; specifically in Tijuana to make use of the benefits brought on by reduced inflation and higher vacancy rates than those in the United States.
ATISA has the most aggressive build schedule in Tijuana. If you’re looking to expand your business across the border and raise your enterprise value, call us today US 1 (855) 512 4368 | MX + 52 (800) 262 2278 or schedule a visit with one of our representatives.