Mexican factory shutdown

Sweeping Mexican factory shutdown strains U.S. production of critical supplies

A range of U.S. companies — from N95 mask supplier 3M to defense contractors — say they’re affected by the factory shutdowns in Mexico.

By SABRINA RODRIGUEZ

American companies making crucial goods like ventilators, face masks and military equipment are unable to get parts and materials they need because the Mexican government has shuttered hundreds of factories and is refusing to reopen them during the pandemic.

Canada and the United States have deemed many manufacturers of parts and materials essential and kept them open during the coronavirus outbreak. But Mexican President Andrés Manuel López Obrador is only allowing companies to operate if they’re directly involved in critical industries such as health care, food production or energy — and not if they supply materials to companies involved in those industries. So Mexican firms along the supply chain that make everything from cleaning products to motors have shut down.

So far, López Obrador has refused to bow to entreaties from the Trump administration and U.S. manufacturers to change his mind, a move that could cost U.S. firms billions as they search for supplies elsewhere around the world and give new ammunition to trade hawks in the administration who want more domestic manufacturing.

“I’m doing all I can to save the U.S.-Mexico-Canada supply chains that were created over the last decades,” U.S. Ambassador to Mexico Christopher Landau wrote on Twitter last week. “It’s possible and essential to take care of the health of workers without destroying these chains. The economic integration of North America requires coordination.”

A range of U.S. companies — from N95 mask supplier 3M to defense contractors — say they’re affected by the factory shutdowns in Mexico. Agriculture and food companies report struggling to get the equipment they need for production and distribution of goods. Ventilator makers are reporting trouble getting motors. Companies seeking cement for construction or generators for energy security say they’re also having difficulties.

Andrés Manuel López Obrador
Mexican President Andrés Manuel López Obrador said last week that he does not intend to make changes to Mexico’s policy until the U.S. economy starts to reopen. | Rebecca Blackwell/AP Photo

More than 320 U.S. manufacturers wrote to López Obrador last week asking him to declare businesses essential if they are producing materials key to the supply chain for critical industries, such as health care — like both the U.S. and Canada do. They asked him to reopen some of Mexico’s factories with strict safety standards that protect the health of workers. The U.S. State Department has also been in talks with the Mexican government to advocate on behalf of U.S. businesses, a State spokesperson told POLITICO.

Some of the inputs aren’t always visibly essential and critical, such as motors needed for ventilator production, said Sergio Gómez Lora, a representative of the CEO Business Council of Mexico in the U.S. office.

“It’s not only the medical equipment itself, but all the inputs you need," Gómez Lora said. "That part isn’t reflected in the Mexican measures.”

But Mexico, at first slow in responding to the pandemic, has now entered the peak period of coronavirus transmission, the Mexican government announced last week. And López Obrador said last week that he does not intend to make changes to Mexico’s policy until the U.S. economy starts to reopen.

“It’s still not the moment,” he said in a daily press conference on Thursday. “We’ve committed, above all to our national business owners, to analyze the opening [in the U.S.] to little by little start going back to normal productivity at the border. But this has not been decided yet because the coronavirus is unfortunately affecting them very much and we also have sanitary policies.”

Mexico currently has more than 14,500 confirmed coronavirus cases and more than 1,350 deaths.

U.S. businesses predict the disruptions could cost companies billions of dollars and create a long-term disruption in North American manufacturing interdependence that has grown since NAFTA went into effect in 1994. The shutdowns are coming just months before President Donald Trump’s new North American trade agreement, the USMCA, is scheduled to go into effect on July 1.

“These massive supply chain disruptions threaten to undermine the U.S.-Mexico relationship, which comes after Mexico became the U.S.’ biggest trading partner” in 2019, said Neil Herrington, senior vice president of the Americas for the U.S. Chamber of Commerce.

So far, some of the major impact has been felt in the medical and food industries, where cleaning and sanitizing supplies, as well as manufacturing and maintenance of equipment necessary for agricultural production, have not been considered essential in Mexico.

Even the Pentagon has taken notice of Mexico’s stricter approach on what it designates an essential activity. Last week, Ellen Lord, Defense undersecretary for acquisition and sustainment, said the factory closures in Mexico were affecting Defense’s major prime contractors, which supply the U.S. defense firms, particularly aerospace manufacturing.

A spokesperson for the Mexican Embassy said Mexican Ambassador to the U.S. Martha Bárcena has been in touch with concerned U.S. business and industry groups and has transmitted the issue to the government.

Part of the issue stems from Mexico’s rapid shift in how it is responding to the pandemic. In just a month, López Obrador went from urging Mexicans to go about their lives as normal to strict lockdown measures in an effort to prevent hospitals from being overrun with infected patients.

“Mexico did a 180 on policy in a matter of days. It went from no response to a very drastic response with not a lot of defined policy in essential services,” said a U.S. business source closely following the issue.

Meanwhile, some Mexican states, such as Baja California and Sonora, have been more restrictive in their measures. Both of those states on the U.S.-Mexico border are home to thousands of maquiladoras, which have seen many cases of the coronavirus, the Los Angeles Times reported. Still, some of those foreign-owned factories have continued to operate in violation of federal orders.

U.S. and Mexican industry sources have also noted that Mexico's approach could make it harder for North America to respond to the crisis. Gómez Lora said Mexico’s approach could have repercussions that hurt its own response.

“At some point, certain essential activities will not be performed," he said, "and that will restrict the ability of the Mexican government to address the health care crisis.”