Why Procurement Should Worry About Mexico – Insight From Spend Matters US

We talked about supply chain risk on Tuesday and how the global situation seems to be getting more uncertain as we enter the era of President Trump.

If you want more insight into the situation and some of the potential consequences, we can recommended this article from our colleague Nick Heinzmann at Spend Matters in the US. In “3 Reasons Why Procurement Needs to Worry About Mexico” he expands on some of the potential risk issues.

Re-writing trade agreements is his first point; if Trump does follow through on some of his threats, what might happen? Here is Heinzmann.

“To get a clearer picture of what withdrawing from NAFTA would look like, all you have to do is think back 15 years. “After the 9/11 terrorist attacks, we sealed the border with Mexico and Canada, and within a week auto plants in Michigan had to begin shutting down because they were not getting access to parts they depended on from Mexico,” Rob Scott, director of trade and manufacturing at the Economic Policy Institute, a left-leaning think tank in Washington, DC, told Vox”.

His second topic is “financial barriers”. That covers the potential border tax; whilst this is not a full analysis of this very complicated issue, there is enough to get many firms thinking;

“Two industries that should be vigilant about any border tax developments are the auto industry and retailers. When considering cost models for new vehicles, auto manufacturers will be faced with a difficult choice: Is it worthwhile to pay a hefty tax at the border but get the parts at a lower cost, or will it be less expensive to build new plants in the U.S. and pay the wages American workers expect”?

Finally, and this was new to me, he talks about some of the risk factors within Mexico itself.  There is volatility there that has nothing to do with events north of the border. As he says, “Large and sometimes violent protests have gripped the country since the beginning of the year, at first in response to gas prices increasing around 20% on Jan. 1. That was the result of reforms ending a state monopoly on the energy industry”.

A tricky situation could of course be exacerbated by Trump’s actions on taxes, border controls, the wall or other steps:

“The combination of growing political instability and threats from the Trump administration stands to harm Mexico’s financial picture, adding yet more risk and volatility that could make the country less attractive to procurement groups looking to source from there”.

Do read the whole article - we will continue to look to our colleagues in the US for the latest information and thinking that might help those procurement folk in Europe who share a global outlook. Oh yes, and our picture here was taken by Spend Matters founder Jason Busch who found himself caught up in a protest blockade whilst he was in Mexico over the recent holiday period!

Discuss this:

Your email address will not be published. Required fields are marked *