Some two dozen major aerospace and defense companies now have significant manufacturing operations in Mexico, and more than half of these are U.S.-based corporations. One has to wonder that when they decided on these long-term investments—in most cases, a decade or more ago—whether any of them contemplated the prospect of a U.S. President winning an election with promises to make it unsustainable for American manufacturers to build products in Mexico.

That is exactly what came to pass with the election of President Donald Trump, who, as his 100th day in office passed on Saturday, still had not delivered on his pledge to introduce a 20 percent tariff on manufactured goods imported into the U.S. from Mexico. The controversial tariff is partly intended to deter U.S. firms from setting up shop south of the Rio Grande and partly to find a way to compel the Mexican government to finance the construction of a wall along the entire length of the 2,000-mile border between the two countries.

In recent weeks, there has been little mention of the 20 percent tariff, but just this week Trump threatened to unilaterally pull the U.S. out of the North American Free Trade Agreement with Mexico and Canada. Within hours he backed down, indicating that he is willing to renegotiate NAFTA instead, only to then repeat the threat if the leaders of the U.S.’s neighboring countries refuse to agree to his terms.

So how concerned should U.S. aerospace and defense industries be that the business case for their Mexican operations could soon evaporate? The U.S. Aerospace Industries Association (AIA) has yet to take a definitive position on the threat of tariffs and the Trump Administration’s shifting trade policies.

“We are working through a number of positions on trade, trade agreements, tax provisions and tariffs with respect to their impact on the free flow of goods and people,” commented AIA communications director Dan Stohr. “As with most—if not all—policy discussions, the devil is in the detail. How would such tariffs be implemented? Against what goods? Are there alternative sources for parts and components coming from tariffed nations? It’s hard to say without concrete details on what the proposals would actually do.”

The planned 20 percent tariff on imports from Mexico no longer features among the policy position statements on the White House website. In its place is a more generic commitment to “trade deals that work for all Americans.”

But experts working closely with the aerospace and defense manufacturing sector in Mexico have acknowledged that the lack of clarity over the threat of tariffs is unsettling leading companies. “I don’t think anyone is viewing this as just political rhetoric,” said Doug Donahue, business development vice president at the Entrada Group, which helps companies to establish and run manufacturing facilities in Mexico.

Donahue told AIN that, as significant as Mexico now is in the aviation supply chain, he does not feel the value of cross-border trade conducted in the sector would justify specifically targeting the industry with the proposed tariff. “But the industry could still be hit if the tariffs cover general manufacturing. We don’t yet know whether [Trump] will do this in an industry-specific way,” he said.

Mexico’s peso currency tumbled in value against the U.S. dollar in the immediate aftermath of Trump’s November 2016 election victory. According to Donahue, the fall in the peso effectively compensated for the potential 20 percent tariff in lowering the price of goods produced in Mexico. He argued that the trend now could have a destabilizing effect if the tariff doesn’t get implemented.

“Companies are worried and concerned by the generally deteriorating relationship between the U.S. and Mexico,” Donahue told AIN. “What businesses hate most is a lack of predictability, so for now they can’t take decisions on possible investments [in Mexico]. The real issue [for American industry] isn’t the U.S. versus Mexico; it’s automation versus the U.S. The trade deficit numbers quoted by the Trump Administration to justify tariffs only take account of goods, not services. The U.S. exports about $40 billion worth of services to Mexico.”

Some industry observers have argued that it would be far too costly for aerospace firms to now move manufacturing back to the U.S. And, even if they did, Donahue questions whether they would find enough suitably qualified employees to do work such as wire harness manufacturing. “A lot of this work is very labor intensive,” said Donahue. “If you can’t find enough labor or automate it, the cost to the consumer [i.e. airlines] will have to go up.”

Donahue warned that the American aerospace sector’s European and Japanese rivals are not waiting for the political uncertainty to clear in Washington, D.C. They are pressing ahead with investments in Mexico, and he argued that U.S. firms could “lose a foothold” and competitive advantage in a price-sensitive market if their position is undermined by costly tariffs.

Major aerospace and defense firms with manufacturing facilities in Mexico include Honeywell, Goodrich, Gulfstream, Textron, Rockwell Collins, Lockheed Martin, Northrop Grumman, Safran, Fokker, Triumph, GE, Bombardier and Meggitt.

WASHINGTON: President Donald Trump expressed optimism on Thursday the United States, Canada and Mexico can successfully renegotiate a trade accord he deems unfair to American interests but vowed to scrap the 23-year-old pact if a “fair deal for all” cannot be reached.

Trump, in a meeting with Argentine president Mauricio Macri, said Thursday he had planned to terminate Nafta, but decided to hold off after speaking to the leaders of Mexico and Canada to see if deal can be made.

“Rather than terminating Nafta, which would be a pretty big shock to the system, we will renegotiate,” Trump told reporters in the Oval Office. “If I’m unable to make a fair deal for the United States … I will terminate Nafta.”

Trump’s comments came a day after the White House decided against taking immediate steps to withdraw from the North American Free Trade Agreement, a pact Trump has long condemned.

Instead of pursuing a termination order considered by some advisers, the White House said Trump told Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau by telephone that the United States would seek to quickly begin renegotiating the pact.

Earlier on Thursday, Trump wrote on Twitter he had received calls from Pena Nieto and Trudeau.

“Relationships are good-deal very possible!” Trump wrote.

In Mexico City, Mexican Foreign Minister Luis Videgaray said Wednesday’s call, initiated by Pena Nieto and lasting about 20 minutes, focused exclusively on the looming talks over Nafta’s “renegotiation and modernisation.” Videgaray said Trump wanted to see the talks accelerated.

“I believe that all the conditions to reach a good negotiation exist, that will suit Mexico … and that is also good for the region, for both Canada and the United States,” Videgaray told local broadcaster Televisa, adding that relations between the United States and Mexico have experienced “enormous progress” during Trump’s presidency.

Trump has criticised multinational trade agreements as unfair to the United States and made pulling out of the 12-nation Trans-Pacific Partnership, negotiated by his Democratic predecessor Barack Obama, one of his first major acts after becoming president in January.

In Ottawa, a Canadian source familiar with the matter said Trudeau urged Trump not to withdraw from Nafta, saying such action would be counterproductive.

Trump repeatedly has threatened to pull out of Nafta, which erased most tariffs between the three neighbours, if he cannot renegotiate better terms for the United States, which went from running a small goods trade surplus with Mexico in the early 1990s to a US$63bil deficit in 2016.

Mexico, Canada and the United States form one of the world’s biggest trading blocs, and trade disruptions among them could cause havoc in the automotive, agricultural, energy and other sectors.

‘Conceptual flaws’

US Commerce Secretary Wilbur Ross told CNBC on Thursday that numerous “conceptual flaws” in the treaty needed to be addressed. Ross said Chinese goods dumped in Mexico are making their way into the United States.

“The rules of origin in Nafta need some tightening,” Ross said. “Rules of origin are what let material outside of Nafta to come in and benefit from all the taxes and tariff reductions within Nafta.”

“It was a silly idea to let a lot of outside stuff in. The whole idea of a trade deal is to build a fence around participants inside and give them an advantage over the outside,” Ross added. “So there’s a conceptual flaw in that, one of many conceptual flaws in Nafta.”

The Mexican and Canadian currencies maintained their rebound early on Thursday after Trump’s latest comments. The US dollar dropped 0.3% against its Canadian counterpart and about 0.5% against the peso.

Trump’s scorn toward international trade deals, part of his nationalist political message, appeals to Americans who feel such pacts have cost Americans jobs, and he has said businesses that choose to move plants outside the country would pay a price.

On Wednesday, the White House said Trump had spoken with Mexican and Canadian counterparts and agreed not to immediately move to terminate Nafta. The announcement came hours after White House officials disclosed that Trump and his advisers had been considering an executive order to withdraw the United States from Nafta, but there was a split among his top advisers over whether to take the step.

“The leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the Nafta deal to the benefit of all three countries,” the White House said in a statement.

Trump long has accused Mexico of luring away American factories and jobs with cheap labour and other advantages enabled by Nafta. On Tuesday, Trump said he did not fear a trade war with Canada even as he complained about Canadian trade practices.

His administration on Monday moved to impose tariffs on imported Canadian lumber that mostly feeds US homebuilding, noting trade authorities have consistently sided with Ottawa in the long-standing dispute.
Read more at http://www.thestar.com.my/business/business-news/2017/04/28/trump-says-will-renegotiate-nafta-deal-with-canada-and-mexico/#7rL0YaVeIvvKhjGF.99

Mexican annual inflation rose more than expected in early April to hit its fastest pace in nearly 8 years, which could bode for further interest rate hikes from the central bank.

Inflation for the year through mid-April was 5.62 percent MXCPHI=ECI, the national statistics institute said on Monday.
The figure was the highest since June 2009, and above expectations of economists polled by Reuters for 5.58 percent.
Mexico’s central bank governor Agustin Carstens last week signaled on that the bank’s cycle of monetary tightening might not be over.
The Banco de Mexico has raised the benchmark interest rate to 6.50 percent, its highest since 2009, with a string of 50-basis point hikes followed by a smaller increase, 25 points, in its last board meeting in late March.
The core price index MXCPIC=ECI, which strips out some volatile food and energy prices, rose 4.76 percent in the 12-month period to mid-April, above the 4.61 percent forecast in a Reuters poll. The rate is at its highest since August 2009.
A deep slump in the peso last year has pressured inflation, but a recent rally in the currency could help contain pressures.
In the first half of April, consumer prices fell 0.15 percent MXCPIF=ECI as summer electricity subsidies kicked in, while the core price index MXCPIH=ECI climbed 0.26 percent.
A separate report from the statistics institute showed the pace of economic growth in February slipped to its slowest since last August.

HIDALGO, Mexico – Like most people who don’t drive an electric vehicle regularly, Mauricio Gonzalez has to check and see if the engine is even running. When he confirms that it is, the SUV made by Chinese manufacturer JAC Motors is flying.

“I think it’s a very nice car. It’s very powerful, and I think it’s very comfortable, also.”

But what Gonzalez is really excited about is that this SUV was assembled in the central Mexican state of Hidalgo. Gonzalez is the state’s undersecretary for economic development. His job is to attract companies here, and the plant where these SUVs are made already employs 200 people.

“Their priority is to create, more or less, 1,000 jobs,” he said.

JAC is one of three companies owned by the Chinese government with a presence in Mexico. Just last month, JAC started selling its SUVs here. They’re working in partnership with a Mexican company called Giant Motors.

Giant was started 10 years ago by a group of Mexican investors. They’ve also partnered with Chinese company FAW Trucks to make commercial vehicles. Giant Motors CEO Elias Masri said that for now, his company’s long-term plan doesn’t even include American consumers.

“The main issue is to make a Mexican product. And our main goal today is Mexico and Latin America,” Masri said.

“Mexico has a lot of other options,” said Kristen Dziczek, an analyst with the Center for Automotive Research in Ann Arbor, Michigan.

“Mexico has free trade with over half the market for new vehicles in the world, and they can very easily shift to being a non-NAFTA export,” she said.

Without a doubt, Dziczek said, Mexico is closely linked to the U.S. She estimates that about two-thirds of U.S. investment in Mexico comes from the automotive sector. But what’s already here won’t just evaporate if the North American Free Trade Agreement disappears.

“Right now, they’re making one in five vehicles for non-NAFTA export, and we see that rising in just three or four years to one in three.”

One possible new partner for Mexico is China. Dziczek said that with Mexico’s established ecosystem of carmakers and part suppliers, it’s a good place for Chinese companies to get a toe-hold as they seek to expand outside of China. Although it should be noted that Chinese presence in Mexico is not new, said Enrique Dussel Peters, the director of Center of Chinese-Mexican Studies at the National Autonomous University of Mexico.

“Well, China is Mexico’s second largest trading partner since 2003,” he said.

But, historically, Mexico has competed with China to export to the U.S. and elsewhere. And Dussel said that in 2016, Mexico’s import-export relationship with China was 13 to 1.

“So we are importing massively from China and exporting very little.”

Mexico could benefit more, Dussel said, but at least for now it lacks the government, business and academic infrastructure to fully exploit that relationship. “And so if we do not make our homework, we will not be able to sell tequila, no? Hah. Less aside other more sophisticated goods.”

Back inside the JAC Motors SUV, Gonzalez celebrates the Chinese investment in the state of Hidalgo. But he doesn’t want companies to come exclusively from one place, whether it’s the U.S. or China.

“That’s why we’re looking forward to promote the state of Hidalgo in Asia, in particular, also in Europe,” he said.

As it turns out, most people betting on whether automotive investments will become a long-term strategy from China are being cautious.

Polish President Andrzej Duda on Saturday starts an official visit to Mexico.

Along comes a score of Polish companies interested in increasing their footprint in Latin America. The five-day mission will include a Polish-Mexican Business Forum and meetings with local companies in Mexico City.
Poland eyes the country as an emerging regional power which may soon join the group of the world’s biggest economies.
Mexico now ranks 11th in the world in GDP-based standings and is expected to become the world’s fifth biggest economy by mid-21st century. The mission to the country is led by the Polish Agency for Investment and Trade (PAIH).
“This is a very important, historic visit to Mexico by our president and we are taking advantage of it to bring the Mexican market closer to Polish companies willing to expand their business overseas,” PAIH vice president Krzysztof Senger told our reporter Michał Owczarek.

Mexico’s top trade negotiator said he was heartened by a retreat from more protectionist rhetoric in the U.S. and that talks to redo the North American Free Trade Agreement may conclude as soon as January.

Economy Minister Ildefonso Guajardo said the January date would depend on the administration of President Donald Trump notifying Congress in time for negotiations to begin by the end of July.

“The U.S. has to trigger the mechanism,” Guajardo said in an interview with Bloomberg TV’s Erik Schatzker in Buenos Aires. “What I keep hearing is that after Congress comes back from recess, they will be able to be notified by the end of April.” In that case talks can start by the end of July, followed by “six months of negotiations, and then we send it to the legislative branch for them to approve it.”

Investors have shed their doomsday outlook on Mexico in recent weeks after White House officials repeatedly said that both Mexico and the U.S. stand to benefit from a renegotiation of Nafta. The peso has rebounded from a record low in January and is now the best performer of all currencies tracked by Bloomberg, and companies that had put investments on hold as then-candidate Trump railed against Nafta are racing back into the country.

“It will be in the best interest of both countries involved to make this process very efficient,” Guajardo said, noting that Mexico has presidential elections in mid-2018 and the U.S. has a midterm vote in November of next year.

Still, Guajardo warned that even minor changes may be difficult to negotiate. On one of those changes, raising the average percentage of auto inputs that must be made in the North American region to 70 percent from 62.5 percent seems reasonable, Guajardo said on the sidelines of the World Economic Forum’s Latin America meeting in Buenos Aires. However, pushing it to 95 percent would be extreme and hurt the region’s competitiveness.

“Mexico will be willing to buy more from the U.S.,” Guajardo said. “We can make an additional effort as long as you have the supply process already in place to be able to supply in Mexico at a competitive cost.”

The Trump administration has softened its rhetoric notably from January, when then President-elect Trump tweeted that he’ll slap heavy taxes on businesses that move jobs to Mexico. Since then, U.S. Treasury Secretary Steven Mnuchin has said redoing Nafta could spell a win-win for both sides. Commerce Secretary Wilbur Ross said he anticipates a sensible deal, and Peter Navarro, who leads the White House National Trade Council, said he wants Canada, Mexico and the U.S. to become a global manufacturing powerhouse.

Some of Trump’s early stumbles, such as the collapse of the health-care bill and court orders against two attempts at a travel ban have also underscored how hard it is to make any drastic changes in Washington.

For example, House Speaker Paul Ryan has been pushing to replace corporate income tax with a tax on businesses’ domestic sales and imports, exempting exports. The border adjustment tax proposal raised alarm bells among importers in the U.S., as well as government officials in Mexico as they feared it would reduce shipments north of the border. But support for the measure has waned in Washington.

That border tax may run the risk of violating principles of the World Trade Organization, and Mexico reserves the right to file a complaint against it, Guajardo said in the interview. In addition, if the U.S. reduces its corporate tax rate, the nation would have to rethink its own tax policy to keep being attractive for foreign investment.

A March 22 draft proposal to rework Nafta signed by acting U.S. Trade Representative Stephen Vaughn states that the U.S. will seek to give preference to domestic companies for government procurement while finding opportunities for U.S. companies to bid in Mexico and Canada procurement markets. While noting that the White House has backed away from the letter, Guajardo said that if the U.S. wants access to Mexico’s public purchases, it will have to give Mexico access to its own public purchases.

Trump must issue a formal 90-day notice of his intent to Congress to revisit Nafta, but the administration so far has been vague about what the U.S. will seek from Mexico and Canada in the talks. Ross said March 10 that the White House would give its notice to Congress within weeks, but it has yet to happen. Mexico has been lobbying for a swift renegotiation that could be concluded before the mid-2018 presidential elections.

Trump may bluster about keeping jobs in the U.S., but not many firms seem to be listening.

At first President Donald Trump’s biggest problem, at least when it came to his vows to keep American jobs from being sent to Mexico, is that he overstated both the magnitude of that particular problem and his own achievements in keepings jobs in this country.

Now, though, the problem is that companies are simply not intimidated by his populist rhetoric.

Companies like Illinois Tool Works Inc. in Mazon, Illinois; Triumph Group Inc. in Spokane, Washington; and TE Connectivity Ltd. in Pennsauken, New Jersey, are reducing the size of or outright closing plants in the United States to move to Mexico, according to a Bloomberg report.

Alan Russell, the CEO of a company in El Paso that helps relocations, told Bloomberg that “this isn’t about taking jobs from the U.S. It’s about saving companies.” Similarly Ross Baldwin, the CEO of a San Diego company that performs a similar service told Bloomberg that “there’s cautious optimism and a hopeful attitude that cooler heads will prevail in Washington.”

As Bloomberg also points out, manufacturing jobs in Mexico increased by 3.2 percent in January from where it was in that month in 2016, while they fell by 0.3 percent in the United States within that same period.

This isn’t to say that businesses are unconcerned with the potential impact of Trump’s policies. In particular, the prospect of Trump trying to renegotiate NAFTA and a plan by House Republicans to impose a 20 percent border adjustment tax could impact the bottom line of retailers like Wal-Mart. At the same time, it seems that many businesses are deciding that the cost-saving advantages of using cheap labor in Mexico may outweigh the negative PR caused by sending jobs out of the United States.

If Trump really wants to be remembered as the president who saved American jobs, he may need to do something that his administration has so far opposed on principle — create regulations on American businesses.

G

Grupo Mexico, a mining and rail conglomerate, is buying the Florida East Coast Railway Holdings Corp. for $2.1 billion under an agreement announced Tuesday.

The purchase will enable the Mexican company to expand its U.S. freight transport business on Florida East Coast Railway’s 351 miles of tracks stretching from Miami to Jacksonville. Grupo Mexico has existing rail operations in Texas.

The transaction will be financed by $350 million in Grupo Mexico funds and $1.75 billion in debt, according to Grupo Mexico.

The sale of Jacksonville-based FEC Railway, which is owned by Fortress Investment Group, will have no impact on the company’s other holdings — including the Brightline passenger train operation in South Florida.

The investment group also owns Florida East Coast Industries, the parent company of All Aboard Florida, developer and owner of the Brightlight passenger train system being built from Miami to West Palm Beach and Orlando.

“The sale of the Florida East Coast Railway does not impact Brightline,” said a spokeswoman, AnneMarie Mathews. “Brightline is a separate company that has dual ownership of the corridor and the right to operate passenger service.”

ACAPULCO, Mexico (Reuters) – U.S. President Donald Trump’s push to force U.S. industry to bring jobs home is opening investment avenues for Chinese companies in Mexico, an executive with Industrial and Commercial Bank of China (ICBC), the country’s largest lender, said on Friday.

Fears of a hit to foreign investment ran high when Ford Motor Co canceled a $1.6 billion plant in Mexico’s central state of San Luis Potosi in January.

Trump, who had railed against U.S. manufacturers investing in Mexico, hailed the decision as a major victory, but Ford put it down to declining demand for small cars.

Yaogang Chen, head of ICBC’s Mexico unit, said U.S. industry’s loss could be China’s gain.

“If some U.S. investment projects don’t (happen), there has to be somebody to invest. … If Chinese companies think it is profitable, they will invest,” he said in an interview on the sidelines of a banking conference in the resort of Acapulco.

In February, China’s Anhui Jianghuai Automobile Group Co Ltd (JAC Motor) and Mexico’s Giant Motors, along with distributor Chori Co Ltd, said they would invest over $210 million in an existing plant to build SUVs in the central state of Hidalgo.

Prior to Trump’s campaign against U.S. manufacturers shipping jobs overseas, Chinese companies were making tentative inroads into Mexico.

China’s BAIC Motor Corp Ltd <1958.hk> in June 2016 started selling in Mexico its own cars imported from China and has said that it will look into building an industrial plant in Mexico to produce cars and electric vehicles.

BAIC is already a client of ICBC’s in Mexico.

ICBC, one of the world’s top banks by market capitalization and assets, received its banking license in Mexico in 2014 and started operations there in mid-2016.

“JAC, we think, will be a client of ours in Mexico too,” Chen said.

Still, Chinese foreign direct investment in Mexico is a tiny fraction of what U.S. firms have plowed in over the years.

State-controlled ICBC expects to grow its assets and loan portfolio in Mexico tenfold over the next three years to some 10 billion pesos ($533 million), Chen said.

The executive said ICBC aims to offer a service to allow clients to convert Mexican pesos to Chinese renminbi and vice versa, and make cross-border transactions cheaper.