States Reconsider Business Plans In Mexico Falling Peso, Rising Tensions Temper Post-Nafta Optimism
After a flurry of openings following enactment of the North American Free Trade Agreement, trade officials of U.S. states in this city are rethinking their roles in the wake of Mexico’s currency collapse and economic crisis.
In some cases, state offices have put off planned trade missions. In others, there is a new focus on select industries. But in all cases, it is no longer business as usual.
“We’re counseling our companies and telling them right now not to come down on a strictly sales mission to introduce new products until we see how things finalize,” said R.C. Schrader, who runs California’s trade office in Mexico City.
However, the California office is advising businesses to keep coming down to cement relationships and understand what Mexican companies are laboring under after the surprise Dec. 20 peso devaluation and subsequent currency collapse.
“In Mexico, it’s all (about) relationships. We’re not encouraging anybody to abandon ship,” he said.
Depending on where the freefloating peso is on a given day, Mexican importers have seen their purchasing power reduced 30 percent to more than 40 percent. Despite that disturbing reality, interest in Mexico has apparently not dropped.
“This office has over 600 trade leads per month, and we didn’t even see a dip in that,” said Schrader, adding companies are indicating that they are rethinking their Mexico strategies. “Instead of selling (to Mexico), some are looking at joint ventures and strategic alliances.”
California still plans a trade mission to Mexico later this month, bringing electronics companies together with Mexican companies. While California is staying the course, Illinois has delayed a March auto parts trade mission and is refocusing its efforts on key industries that are not hurt by the devaluation.
While consumer goods exporters are expected to be hurt by the economic crisis, manufacturers and exporters of capital goods - 65 percent of Illinois’ exports to Mexico - will not be overly affected, said Raymundo Flores, who runs the Illinois trade office.
Machinery and related parts and intermediary goods will remain in demand in Mexico, he said.
In the case of Texas, the largest U.S. state doing business with Mexico, the devaluation has apparently had the effect of separating the interested from the curious, office head Marco Delgado Licon said.
“I think that the people we’re working with from the Texas side of the border have been weeded out, so to speak,” he said.
“They’re more sure of what they want to be doing in Mexico. We’re seeing an expansion of niche markets.”