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U.S. Factories Low on Inventory Show Reliance on Mexico’s Restart

U.S. Factories Low on Inventory Show Reliance on Mexico’s Restart

(Bloomberg) --

The past four weeks have been a real test for North American supply chains. Even as some U.S. states gradually begin to reopening their economies, some American manufacturers — especially small- and medium-sized ones — are finding themselves reliant on how and when Mexico will decide to lift its restrictions.

Mexico's stringent shelter-in-place order shut down of almost all manufacturing in the country. For U.S. companies like Bradford White, whose water heaters have been deployed in New York’s Javits Center-turned hospital in the state's fight against the coronavirus outbreak, the shortage of inputs from Mexico could soon mean significant production interruptions.

The problem for businesses on both sides of the border is that the U.S. and Mexico don't agree on how to define an “essential” business or service. While the U.S. government deems entire supply chains essential, Mexico does not.

With inventory running low and no relief in sight, the squeeze is giving U.S. companies a stark reminder of their reliance on Mexican inputs and suppliers.

“With Mexico not allowing production, that’s a bit of a problem for us right now,” Scott Wine, the CEO of Polaris, in an interview Tuesday. The Minnesota-based recreational-vehicle maker relies on Mexico for parts such as engines, which it produces at a Monterrey plant located about 100 miles from the U.S. border.

Officials from both countries have been in touch but so far haven't found a solution.

Mexican ambassador to the U.S., Martha Barcena, said Tuesday that Mexico is not reluctant to coordinate with the U.S. on the matter.

“We have to acknowledge that the evolution of the pandemic has been different in the two countries,” Barcena said on Twitter. “There is total awareness of the importance of preserving the value chains.”

The U.S. Ambassador to Mexico, Christopher Landau, also weighed in over social media, offering the help of an embassy commercial attaché who will reach out to Bradford White.

Still, a lingering conflict could result in companies reconsidering their dependence on Mexican supplies, said Kevin Messner, senior vice president of policy and government relations at the Association of Home Appliance Manufacturers.

“Businesses want stability and they want certainty, more than ever,” he said.

Charting the Trade Turmoil

U.S. Factories Low on Inventory Show Reliance on Mexico’s Restart

U.S. exports and imports of goods slumped in March to the lowest level in almost three years as the pandemic shut down economies across the world. Goods exports fell 6.7% from the prior month -- the sharpest decline since 2008 -- led by plunges in auto shipments and industrial supplies such as oil, according to Commerce Department data released Tuesday.

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Bloomberg Analysis

  • Global outlook | Which country recovers first? Bloomberg Economics gives GDP forecasts for lockdown world.
  • Mexico tracker | Track Mexico’s downturn with Bloomberg Economics’ high-frequency dashboard.
  • Use the AHOY function to track global commodities trade flows.
  • See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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