Under threat of tariffs, Mexico less attractive to companies that avoid the trade war with China By Reuters

By Anthony Esposito

MEXICO CITY (Reuters) – A flood of companies that see Mexico as a haven against the US trade war with China may fade after President Donald Trump threatened last week to release tariffs customs.

The news of Trump's tariff plan has crushed the Mexican peso and cast doubt on the ratification of a new North American trade agreement, a treaty reworked during months of scary talks previously demanded by the US president.

At a time when companies thought the trade deal had turned Mexico into a tantalizing manufacturing alternative to China, Washington's new threats have once again unbalanced several threats.

Take as an example the recent experience of the outsourcing company Tecma Group, which has seen a renewed interest from companies considering moving to Mexico while Trump has increased customs duties at 25% on Chinese goods worth $ 200 billion.

Tecma, which runs about 75 factories in Mexico, has been approached "every week" by companies selling furniture, ink pens, looking for a way out of China to get to Mexico, according to Alan Russell, its director General and President.

Now, after Trump has promised to introduce 5% tariffs on all Mexican exports to the United States as of Monday if Mexico does not slow down the influx of migrants to the US border, these hoped-for investments are likely to be frozen, Russell said.

"A board of directors will not say, 'Let's do it' at a 25% rate," Russell said.

There are few figures available to assess the extent of the transfer from China to Mexico. But data showing that Mexico is becoming the largest trading partner of the United States while China exports less to the United States, combined with anecdotal evidence, suggest a significant trend.

Fuling Global Inc., a specialized producer of plastics and paper, which is starting a manufacturing plant in Monterrey, northern Mexico, has suffered the same blow.

In an April letter, the company said the planned plant "would help largely reduce the impact of trade changes between China and the United States."

It now seems outdated, but the company has downplayed concerns about Trump's latest move.

"Everything we do in Mexico is linked to the long-term strategic growth of our company … If we produce in Mexico, we will save a lot of freight and reduce delivery times." It's a huge advantage. said the chief financial officer. Gilbert Lee.

If Trump manages to face its tariff threat, Lee said that Fuling and its customers would initially bear the cost burden, but that "consumers will have to pay for it".

Similarly, GoPro Inc., a camera manufacturer, decided in early May to transfer most of its production destined for Mexico to Mexico in order to "protect us against any tariffs," said the director. financial, Brian McGee, to investors at the time.

A GoPro spokesman said the company was "closely monitoring" the negotiations for an immigration agreement.

Testifying that such cases were part of a wider wave of interest for the Mexican manufacturing sector, the Southwest Maquila Association, a binational industrial association, said it had heard in the last six months about a dozen companies that had expressed their views. interest in investing in Mexico, against or 4 the previous six months, according to Gustavo Gonzalez, president of the organization.

"THE COURT OF AMERICA"

In fact, Mexico surpassed China and Canada in the first quarter of 2019 to become the largest US trading partner in goods, according to data from the US Census Bureau.

Shipments from Mexico to the United States rose 5.4% in the first quarter, while shipments from China fell 13.9%, he said.

The UBS bank said Mexico had taken market share from China by selling products listed in a list of US tariffs dating from September 2018.

Companies already established in Mexico are worried, but feel it is too early to assess the impact of the new spat.

Among them, manufacturers such as LG Electronics, who migrated several years ago to build televisions in Mexico using imported parts and ship them to the United States duty-free under NAFTA.

The potential of US tariffs on all imports from Mexico could upset this supply chain, among other things.

Uncertainty over tariffs could prompt companies to suspend their Mexican investment decisions, said Gabriela Soni, director of investment in Mexico at UBS Global Wealth Management.

"But if it is only 5% instead of 25%, it may not change the game because the peso is also depreciated," she said. declared.

(Report and writing by Anthony Esposito, additional report by Timothy Aeppel in New York, Sharay Angulo and Noe Torres in Mexico and Nichola Groom in Los Angeles, edited by Alistair Bell)