Business, Economics and Jobs

How a NAFTA repeal would affect Mexican business depends on who you ask

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Workers bottle beer at Cerveceria Insurgente, an artisan microbrewery in Tijuana. 

Credit:

Photo by Cerveceria Insurgente

Cerveceria Insurgente is located in a modern, three-story, concrete building in Tijuana’s upscale Zona Rio district. Business has been booming since it opened seven years ago, and the company just added a rooftop garden. Their most popular beer is called La Lupulosa, a strong brew named for the Spanish word for hops.

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“I was born in San Diego, grew up in Tijuana, went to school in San Diego every day and came back, so I got pretty used to crossing the border,” says Ivan Morales, who co-founded the brewery with his brother. While attending college in the US, the brothers were inspired by the burgeoning craft brewing scene in San Diego and thought about doing something similar south of the border. Today, they’re producing about 3,000 barrels of beer each year.

“The majority of what we use to make beer comes from the US: labels, bottles, malt, hops, yeast,” Morales says, adding that about 30 percent of Insurgente’s business comes from exporting its beer back to the US. “There's definitely a lot of to and from involved with the border.”

Importing his ingredients is cost-effective, Morales says, thanks to NAFTA. 

“It makes it so that it doesn't really matter if you're buying it in Mexico or in the US. For us, it makes a lot more sense to buy it from the US because it ends up being way cheaper,” he says. “We get better quality ingredients because we're so close; it's actually quite convenient.”

But Morales is worried all that might change.

“As soon as [President Donald] Trump rolled along and started talking about repealing NAFTA, we started worrying,” says Morales, though he admits to being skeptical at first that anything significant would actually change. But he says, given the deadlock on NAFTA renegotiation, a repeal "seems maybe a little bit more realistic than we thought it would be.”

If NAFTA is repealed, Morales says the cost of materials would skyrocket, which would in turn make Insurgente’s beer more expensive, and thus harder to sell. Morales says that, because of the nature of his business, his company is extremely vulnerable to fluctuations in the price of goods as well as currency. At the time of Trump’s inauguration, for instance, the dollar was very strong against the peso, which concerned Morales, who pays for ingredients in dollars but sells beer in pesos. 

“We can’t really raise and drop the price every week according to what the dollar’s at,” says Morales. “We were really worried about how that was going to impact our pricing, and whether or not our beer was going to be accessible to average consumers in Mexico.” 

As Morales shows me around the brewery’s newly expanded headquarters, it’s clear that he’s proud of what he’s built. For now, he doesn’t really have a backup plan should NAFTA go away.

“I was joking with my brother that we might have to go straight to Canada for our stuff,” he says. “There’s going to be ways around it. I feel like the Trump presidency so far has been a lot of bluff, trying to do stuff and not being able to get it done. I think a lot of what Trump says he's going to do is either undoable or hopefully would take too long to do or would meet so much opposition that it would never happen.”

Not everyone would be so disrupted if NAFTA were ended. Across town, MIND Hub is a tech incubator based out of a slick new coworking space in central Tijuana, where start-ups provide software development and other tech-related services to US companies like Playboy and Coca-Cola.

“If NAFTA is actually pushing to make manufacturing labor more expensive, that's going to work in our sector’s favor,” says Guillermo Mejía, MIND Hub’s managing director. “It will actually accelerate Mexico to be more competitive in other types of services.”

A potential repeal of NAFTA is likely to hit Mexico’s manufacturing industry first. In Tijuana, more than 200,000 workers are employed at some 600 assembly plants, called maquiladoras, making anything from car parts to medical devices. But some predict that many of those jobs will eventually be lost to automation, just like in the US, so tech-minded entrepreneurs like Mejía are looking to a future that’s less dependent on manufacturing. 

“We're pushing for more high-quality jobs,” he says. “The idea with the incubators is to find those opportunities and actually beat the US corporations at their own game.”

Mejía says the US needs engineers, and Mexico has the talent to meet that demand. In 2015, the country produced more engineering graduates per capita than either the US or Canada. 

“Tijuana overall has around 30 colleges, most of them have an engineering degree,” he says. “There's a huge pool of talent.” 

For now, NAFTA offers a fast-track “TN” visa that makes it easier for engineers and other skilled Mexican and Canadian professionals to go to work for US firms. If the deal is canceled and that goes away, Mejía, for one, sees opportunity.

“There’s a huge demand: They need a million employees a year,” he says. “If qualified workers are not allowed to go to the US, they're missing huge opportunities, huge market shares. If they don't resolve that, there's going to be a Chinese company or a Mexican company that’s going to service their consumer base.”

If US firms can’t get qualified engineers to come to work for them, he says, they might look to outsource that work to a corporation outside the US — in a place like Tijuana. 

“We can help you with that. We do that,” he says. “So it's actually to our advantage.”

Whatever the outcome of the trade negotiations, the message being received is that Mexico’s trade relationship with the United States should not be taken for granted, and businesses need to take that into account as they plan for the future.