The “new normal” has become the new shorthand for both seismic and subtle shifts triggered by the COVID-19 pandemic. The global crisis touches every facet of our political, professional, and personal spheres, and as cities and borders begin to re-open, everyone’s asking “What happens next?”
Last week, JOC dove deeper into what the “new normal” means for Mexico trade and what trade partners should consider as the US, Mexico, and Canada economies continue to re-engage. Here are our top three takeaways from the session:
1. Mexico’s recent economic stagnation will still preclude growth after the COVID-19 crisis ends.
Global economies have contracted considerably over the past three months and April showed the magnitude of the economic decline. The Purchasing Manager’s Index (PMI), an indicator of economic health for manufacturing and service sectors, and GDP growth forecasts both indicated recessions across the globe. The IMF projects -3% GDP growth globally from 2019 to 2020 and -6.6% GDP growth in Mexico.
While it remains difficult to predict how economies will bounce back as consumer demand grows and supply chains reconnect, Rafael Amiel, Director of Latin American and Caribbean Economics and IHS Markit cautioned that COVID-19 has compounded pre-existing economic challenges.
Mexico’s economy was struggling prior to the pandemic in part due to the decline in public investment over the past decade. From 2019 to 2020, public investment in Mexico dropped by 42% (Source: webcast confidential graph, IHS Markit). That loss has not been replaced by private sector infusions and private investors may be more wary to open their pockets given global economic downturns.
Amiel posits that what was true before the pandemic is true now: the Mexican administration needs a clear plan, whether that’s centralizing economic strategies and implementing new policy and stimulus measures, or creating avenues for the private sector to play a larger role.
2. USMCA will still go into effect on July 1, so focus on implementation.
The United States Mexico Canada Agreement (USMCA) is a new trade agreement and update to the North American Free Trade Agreement (NAFTA). The trade and logistics industry have debated the benefits and pitfalls of USMCA over the past 24 months, and the COVID-19 crisis refueled those conversation. Automotive groups have called for delayed implementation of USMCA due to pandemic related costs, supply chain interruptions, and new safety standards. However, the agreement will still go into effect July 1.
Representatives from Venable’s international trade sector encouraged the trade community to focus on implementation, connect with their affiliated associations, and use existing channels of implementation support to navigate COVID-19 questions.
They also shared that the trade community can expect notices from the United States Trade Representative and U.S. Customs and Border Protection (CBP) over the next 2-3 weeks. These bodies are finalizing rules of origin, Harmonized Tariff Schedule changes (GN 11), and final implementing instructions. Interim instructions are currently available through CBP.
3. Mexico carrier sales are down but cross-border volume and prices vary.
Mexico’s exports decreased by 41% from March to April but the overall impact to the transportation and logistics industries remains unclear. A survey by CANACAR, the national association of Mexico carriers, reported that sales are down 46% but volume and price depend on the vertical and lane. Smaller carriers have been the hardest hit with a 46.8% decline compared to -35% decline for large carriers. So far sector jobs are down only 1.1% as companies attempt to wait out the drop in demand.
Mexican Carrier Sales
Be nimble, be kind
No historic world event compares to the scale and impact of the COVID-19 pandemic, but governments, societies, and businesses have always had to respond to crises and to learn from past mistakes. Those shocks and missteps may have led to an “Adapt or die” business mentality years ago, but trade and logistics professionals know better. Our global economic recovery hinges on collaboration and communication across our borders. Forager was proud to sponsor JOC’s webcast and will continue to bring visibility to the economic and personal sides of cross-border shipping.
Whether we call it “new” or just “normal”, change will keep coming and we’ll tackle it together.