As President Donald Trump and his economic advisers look to start reopening the U.S. economy in May, a central question is emerging for companies with supply chains stretching across North America: What if Mexico and Canada don’t have the same timetable in mind?
Manufacturers in sectors ranging from chemicals to electronics have suppliers across the continent’s national borders. The automotive industry, which halted operations weeks ago to protect workers from the Covid-19 pandemic, is also contemplating how to reboot in North America.
Much of the uncertainty about timing revolves around Mexico, which so far has taken an even stricter approach than the U.S. and Canada in the way it has designated essential businesses allowed to still operate during the health crisis.
The lack of coordination between the three signatories of the revised Nafta agreement that passed earlier this year — renamed the U.S. Mexico Canada Agreement — has caused chaos for many industries. And that’s only going to increase when economic activity in one of the nations resumes.
On Thursday, Trump plowed ahead with his plans to reopen the U.S. economy — releasing guidelines that could allow some states and employers to resume business and work within a month.
“A national shutdown is not a sustainable longterm solution,” the president said in a briefing. “To keep vital supply chains running, these chains have to be taken care of so delicately. We must have a working economy and we want to get it back very, very quickly.”
The shutdown of the American economy and the paralysis of normal life brought with it more than22 million unemployment claims within four weeks, increasing the pressure on a White House that’s gearing up for re-election to ease the economic pain for businesses struggling to hang on.
Some of the big carmakers have indicated plans to reopen starting in early May. But for the auto industry in particular to get back to producing vehicles, it’s not enough to just reopen parts of or even the entire U.S. economy.
“When we reopen, the fact that everything reopens in a coordinated sequence is very important,” said Kristin Dziczek, the vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Michigan.
Auto supply chains across North America are so intertwined that a smooth reopening means auto-producing states in the U.S., provinces in Canada and Mexican states have to get on the same page, said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Association.
Washington, Mexico City
“Industry is so integrated across the three countries that it’s so dependent on coordination at all times,” he said. “If any one auto state doesn’t have the same commitment to safe back-to-work protocols, this thing won’t work.”
While the business communities in the U.S. and Mexico are aligned on the goal to ensure a smooth reopening, coordination between Washington and Mexico City so far hasn’t been as tight.
Mexico President Andres Manuel Lopez Obrador last week pledged to reopen the country’s vehicle and auto-parts plants three to five days ahead of the U.S. schedule to ensure supply chains can get back up and running. Yet, some business executives in Mexico and the U.S. are skeptical that the promise will be put into action, noting that nothing has been put into writing to make his plan official.
“What I make of his comments is that they are receiving pressure from the industry about the supply chains being disrupted,” said Sergio Gomez Lora, U.S. representative of the Mexican Business Coordinating Council. “They are showing some flexibility.”
Other executives consider Lopez Obrador’s comments a welcome signal that acknowledges the importance of North American integration after weeks of his administration taking a conservative approach on maintaining even limited economic activity during the shutdown.
Even in a best-case scenario in which the nations and states cooperate on the timing and scope for a reopening, the logistics will be more complicated for individual companies and plants.
Industry safetyplaybooks like the onereleased by automotive seat supplierLear Corp. include recommendations on plant opening protocols and worker training. Among them: staggering shifts, taking temperatures and rearranging work stations to allow for social distancing.
Safely reopening a plant also requires sufficient supply of personal protective equipment for workers, which will likely be a problem given the shortages of gloves and masks in the U.S.
“If we learned any lessons from China, it’s that the restart will be staged,” Volpe said. Plants in China that cycled through the virus outbreak and came back online didn’t restart at full production, in part because the demand wasn’t there and because the workplace had to be restructured to protect employees’ safety.
Still, more important than reopening is getting the reopening right. As everyone will start production without revenue initially, the most important ingredient is working capital, Volpe said. And very few can afford to restart and close again if something goes wrong.
“The auto industry would be financially devastated if they have to cycle through phases of zero production and ramp-up repeatedly,” Dziczek said. “They’re going to need the restart to stick.”
— With assistance by Craig Trudell
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