In every community, there is an economic development committee which attempts to increase jobs in the area. Ideally the focus is what is existing and develop those businesses along with others to complement. But the sexy headline in the newspaper is a large multinational firm relocating to the area to jump start investment and jobs. If a large multinational firm decides to locate, there will be a demand for housing, increased retail sales and perhaps new schools and other services. A number of regular economic activities happen and more can happen.

In an article by Peter S Goodman of the New York Times News Service, the same thing that happens in Mexico. For years, first NAFTA was in place, then President Trump renegotiated the deal to USMCA, but it amounts to free trade of goods and many multinational firms have built operations in Mexico to send goods to the US to achieve higher margins and profits.

During the USMCA, companies that relied on China to ship goods to the US, did not move operations to the US, many moved them to Mexico. The companies include Trane, a company that makes heating and air-conditioning units. The practice of moving to Mexico is called near-shoring or in this case closing the distance between plants in Asia and customers in the US.

The proposed tariffs across the board, leads to companies similar to Trane which makes parts in Mexico, but the final assembly is in Tennessee.

At the moment, business leader in Mexico believe that Trump hates China more than he hates Mexico, and given the long standing agreements, Mexico will benefit.

One of the cities that has benefited from near shoring is Monterrey, which has over 5 million people. The city is within 3 hours of trucking to the US and in 2024 over $23 billion of foreign investment was committed to more than 100 projects. 2 of the projects are Volvo making trucks and John Deere making construction equipment. Intel is looking at possible operations. Bosch, a German home appliance giant shifted some operations from China to Mexico.

A Tennessee company called Plaastiexports which does custom injection molding expanded into Mexico and uses robotic arms to pluck lids for plastic storage containers from the steel molds. The factory has 41 machines, and it is expected to double to 82 in 2025.

Wisdom Digital Logistics which operates warehouses and arranges trucking on both sides of the border opened a 4th warehouse and is considering expansion to number 5.

Besides US and European companies, Chinese companies have opened operations in Mexico. According to the Rhodium group, in 2023, Chinese companies made 42 investments worth $3.77 billion. According to the USMCA agreement, as long as the rules of origin are satisfied, requirements that certain percentages of the parts are drawn from North American suppliers, the products are classified as Mexican and are duty-free to the US. Chinese companies employ Mexican workers while buying parts and materials from the US and Canada.

Linking to dividend paying stocks, the basic rules around manufacturing are the same whether you are in the US or another country, it really depends on where the senior executives want to spend their time. For once a plant is built, through the capital allocation, then it needs ongoing support from the senior team. As robots are involved in more manufacturing at all levels, the advantage of cheaper labor is offset to a degree. There are a host of factor that need to be checked off, but investors are expecting wherever the plant is located, margins remain high enough to ensure profits are made on sales and dividends can be paid.

There are more questions than answers, till the next time – to raising questions.