U.S. Factories Face a Hitch in Reopening: Mexico’s Shutdown

Date: Thursday, May 7, 2020
Source: The Wall Street Journal

U.S. manufacturers preparing to resume production after a month of lockdowns are returning to work without a reliable supply of parts from plants in Mexico, a majority of which remain idled by restrictions there to slow the spread of the coronavirus.

Mexico exported $358 billion worth of goods to the U.S. last year, surpassing China as the nation’s largest trading partner. But many subsidiaries and suppliers of parts or finished goods to U.S. manufacturers remain closed by the order of Mexico’s Health Ministry, limiting the flow of goods back north across the border.

Mexico’s lockdown covers entire industries that remain in operation in the U.S. or are planning to resume production, including the auto industry. Auto makers in the U.S. voluntarily idled assembly plants but are expected to resume production later this month.

Jeff Clark, chief executive of Waukesha Metal Products, a Wisconsin-based metal stamper and fabricator, predicted it will be difficult for auto assembly plants in the U.S. to reopen without suppliers in Mexico starting production as well. Waukesha was forced to close a plant in Mexico on April 6 that makes parts for vehicles assembled in both Mexico and the U.S.

“We’re essential in the U.S. and still operating, but in Mexico we’re completely shut down,” he said.

Repairing the frayed supply chains will be an early test for the revised version of a free-trade agreement between the U.S., Mexico and Canada, which is set to take effect in July. Trade experts say the pact, like many trade treaties, lacks standard definitions for essential industries that would remain open during a crisis that affects all three countries such as the coronavirus pandemic.

U.S. companies and some states have been lobbying for Mexican plants near the border to reopen, raising tensions between border towns where manufacturing and trade are tightly linked. Mexican authorities have cited border factories for contributing to higher rates of infection in northern Mexico.

A spokesman for Robert Lighthizer, the U.S. trade representative, had no immediate comment on the agreement or the impact of the pandemic on trade between the U.S. and Mexico.

Mexico’s Economy Ministry said on April 24 that it was working with U.S. and Canadian counterparts on a plan to gradually reopen the automotive industry.

Mexican officials have been reluctant to deviate from the Health Ministry’s guidelines on essential businesses. Public health authorities say the trajectory of the pandemic in Mexico is behind the U.S., requiring that more businesses there remain closed.

“Mexico is going to follow its own calendar,” Marcelo Ebrard, Mexico’s foreign minister, told reporters last week.

Lennox International Inc. said its two plants in Mexico remain open as providers of heating and refrigeration equipment to essential businesses. But at least a dozen suppliers of components for the company’s equipment were closed for a month by local authorities, who didn’t make exceptions for them to fill orders from Lennox, said John Hurst, Lennox’s vice president of government affairs. He said about half of those suppliers were allowed to reopen this week.

“The Mexican supply chain affects every plant we have,” Mr. Hurst said.

Home-appliance manufacturers, too, rely heavily on plants in Mexico, the second-largest producer of appliances imported to the U.S. behind China. Appliance companies including Whirlpool Corp. have said some of their suppliers in Mexico haven’t succeeded in securing permission to remain open.

“We’ve had some issues of stop and start with certain players,” Whirlpool’s Chief Executive Marc Bitzer said Friday. “They have not been completely resolved, but we remain confident they will be resolved.”

More than 300 U.S. chief executives signed a letter last month from the Washington-based National Association of Manufacturers to Mexican President Andrés Manuel López Obrador asking that Mexico recognize the broader set of guidelines for essential manufacturing issued by the U.S. Department of Homeland Security. That list, which identifies 16 critical industries, has been widely adopted by state governments in the U.S.

The supply strains are adding to the uncertainty for manufacturers navigating one of the steepest drops in demand for their products in decades. U.S. factory orders posted a record drop in March, the Commerce Department said on Monday.

Mexican health officials have blamed export-focused manufacturers and their factories near the border with the U.S. for spreading the virus by not closing the plants quickly enough early in the pandemic. Tijuana, just across the border from San Diego, has been one of Mexico’s most infected areas.

In Ciudad Juárez, a manufacturing hub near El Paso, Texas, authorities said 13 workers at a plant for car-seat manufacturer Lear Corp. died of the virus. Lear said it suspended operations at its 42 plants in Mexico last month.

Javier Corral, the state governor of Chihuahua, where Ciudad Juárez is located, said he has rejected requests from U.S. governors and business executives for his state to establish a separate schedule from the rest of the country for reopening automotive and aerospace plants.

“What we’re looking for from the federal government is some alignment, so that we can reopen at the same time.” Mr. Corral said. “We’re going to follow all of the recommended health measures.”

 

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