Mexican Lockdown Fouls U.S. Manufacturing Plans to Reopen

(Bloomberg) -- Bradford White Corp. is an American company that prides itself in making water heaters at plants in places like Niles, Michigan, and Rochester, New Hampshire.

They’ve even been deemed essential in fighting Covid-19, deployed in New York’s Javits Center-turned hospital and Chicago’s McCormick Place hospital.

But now, Bradford White is maybe weeks away from significant disruptions to its manufacturing, a victim of a clash between the U.S. and Mexico on what’s considered an essential business or service. None of its popular heaters can be assembled in America without importing critical parts from Mexico -- where the government has shut down almost all manufacturing. Those parts, including gas controls and electric elements costing as little as a few dollars, can’t be had.

“If there were U.S.-produced alternatives, that would certainly be our preference,” said Carl Pinto, the firm’s senior director of communications. “But unfortunately there are several components that are critical to our products which are only produced in Mexican factories.”

As the U.S. government talks of gradually re-opening the economy soon, Bradford White and other manufacturers making essential goods are trying to grapple with a hodgepodge of rules in North America that are causing chaos in their supply chains. At issue is the divergence in what qualifies as an essential business -- including their suppliers -- in all three North American countries.

Guidance from the U.S. Department of Homeland Security explicitly states that the entire supply chain for such companies is deemed essential. Canada’s rules closely resemble the U.S.’s.

That’s not the case for Mexico.

Strict Rules

The Mexican government on March 30 issued a strict shelter-in-place order that allowed for almost no exemptions, not even for businesses that would be considered essential to keep the public safe and healthy. U.S. companies operating in Mexico, as well as their Mexican suppliers, had to shut down, in industries ranging from aerospace to health care and paper products.

The new rules triggered a raft of complaints from business representatives on both sides of the border. They said that President Andres Manuel Lopez Obrador, slow to respond to the virus outbreak, ended up applying a highly restrictive blanket reaction to make up for time lost.

“What we’re pushing for is that if we don’t mirror the U.S. guidelines, we should apply very similar ones -- not just to address the health crisis but also to help us come out of the economic crisis,” said Sergio Gomez Lora, U.S. representative of the Mexican Business Coordinating Council, one of the country’s biggest business lobbying groups.

The AMLO government’s reluctance to allow plants to reopen stems in part from reports that Mexican workers died in factories that were not adhering to the stay-at-home order. But what complicates the matter is that there’s an inconsistency even within Mexico -- and sometimes within a Mexican state -- on how the government’s lockdown order is enforced, business representatives say.

Standex Electronics Inc., headquartered in Fairfield, Ohio, saw that up close. It designs parts for medical equipment such as CT scanners and X-ray machines, as well as components used in the utility grid and the defense industry.

At its plant in the Mexican state of Sonora, smack on the Arizona border, Standex makes a coil for Canadian-based Creation Technologies, which, in turn, powers a blood analyzer made by Instrument Technologies Inc., based in Westfield, Massachusetts.

Earlier this month, Creation Technologies ran out of the custom-designed coils. It pleaded with the AMLO government to allow Standex to reopen the plant in Agua Prieta so it wouldn’t have to shut down production.

Roughly 20 other Standex customers joined in, bombarding Mexican officials with letters calling its products essential, all to no avail, said Tom Gould, Standex’s vice president of sales for North America.

“We now have enough letters from customers that we could paper the walls,” he said.

Value Chains

Finally, after three weeks of pleading, Standex Electronics last week got word that it can reopen its Sonora facility at roughly one-third of its capacity and with strict social-distancing rules in place.

Getting that approval, though, was as much luck as persistence. The plant manager happened to run into a Mexican official who was receptive to the company’s request after reading a letter from a customer that had been translated to Spanish.

“There does appear to be a random element here,” Gould said ruefully.

Mexico’s ambassador to the U.S., Martha Barcena, said on Twitter Tuesday that “there is no reluctance to coordinate” with the U.S., and the governments are working together.

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

‘Not Happy’

Bradford White and many other companies remain in limbo. They and their trade associations have been lobbying both the Trump and AMLO administrations. The Mexican foreign ministry has been working with the U.S. Commerce Department to try to find a solution, according to a person familiar with the efforts.

When asked about coordinating with his North American partners to avoid disruptions, Trump last week said, “If a supply chain based in Mexico or Canada interrupts with our making a big product and an important product, or even a military product, we’re not going to be happy, let me tell you that.”

For most companies, Trump’s ultimate solution -- that companies move more production to the U.S. -- isn’t feasible or even realistic. But Mexico’s reluctance to coordinate with the U.S. could end up pushing more American companies to do just that if the conflict drags on, business leaders say.

“Businesses want stability and they want certainty, more than ever,” said Kevin Messner, senior vice president of policy and government relations at the Association of Home Appliance Manufacturers.

That’s something Bradford White doesn’t have at the moment. Executives are working in a “frenzy” as they try to figure out from long-term suppliers when a loosening in Mexico might occur, Pinto said.

“This is not something that is probably in a lot of peoples’ business continuation plan,” he said.

©2020 Bloomberg L.P.