Companies with programs of the Maquiladora and Export Manufacturing Industry (IMMEX) face new challenges that will allow their resilience to be seen, highlighted an analysis published by the Federal Reserve Bank of Dallas and prepared by Jesus Cañas.
Overall, Mexico’s maquiladoras, a major generator of manufacturing activity and employment along the US-Mexico border, face a changing landscape.
The evolution of world trade patterns, reflecting tensions in supply chains and the increase in the production of electric vehicles, will test the agility of maquiladoras and their growth prospects,” said Cañas.
In the early 2000s, a recession in the United States and increased competition from China after the country’s entry into the World Trade Organization (WTO) forced the IMMEX industry to downsize and cut employment.
After the Great Recession, employment at IMMEX companies took more than three years to recover in Mexico, while production needed a year and a half to return.
In comparison, Cañas contrasted, the US manufacturing industry has not yet recovered. Employment is still 5.2% below pre-Great Recession levels, while output has lagged behind by 2.9%.
“However, more than two years after the start of the Covid-19 pandemic, the operating environment of maquiladoras has changed. Global trade, including chronic input shortages and the specter of a global economic slowdown, poses tough challenges.
“In addition, auto parts and assembly companies, which make up the majority of maquiladora output, are facing the transition to electric vehicles, which require new and different manufacturing processes,” he added.
The regulations adopted in Mexico merged in 2007 the maquiladora industry and a program for national exporters in what is currently known as the Program for the Manufacturing, Maquiladora and Export Services Industry.
In 2021, IMMEX companies represented 58% of Mexico’s manufacturing GDP (as well as the majority of the country’s manufacturing exports) and 48% of industrial employment.
In perspective, the manufacturing industry represented 19% of Mexico’s total GDP and 19% of employment. In the United States, the manufacturing industry represents 11% of GDP and 8.4% of employment. In addition to auto parts and automobiles, maquiladora output includes electronics, medical devices, aircraft parts, and machinery. IMMEX companies also sell services.
After the approval of NAFTA in 1994, the activity of IMMEX companies was increasingly correlated with US manufacturing production and, therefore, is susceptible to recessions and expansions impacted by what happens north of the border. When there is a spike in US consumer demand for refrigerators, televisions, washing machines or cars, production orders rise at IMMEX companies.
roberto.morales@eleconomista.mx
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