President Donald J. Trump is joined by Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau at the USMCA signing ceremony Friday, Nov. 30, 2018, in Buenos Aires, Argentina. (Official White House Photo by Shealah Craighead)
Angela Velasquez reports for Sourcing Journal that the combination of coronavirus and the Trump administration’s USMCA could lead to greater “nearshoring,” a term describing supply-chain sourcing from nearby countries, with Mexico. She writes:
Though the denim industry faces unprecedented challenges, executives from leading Mexico-based mills are planning for a brighter future.
As denim mills in the country prepare to reopen on June 1, Tricia Carey, Lenzing’s director of global business development for denim, gathered players from Cone Denim, Global Denim, Kaltex and Tavex for a virtual roundtable discussion about how they are ensuring safety at their facilities, how investments are building up their capacity and why Mexico’s proximity to the U.S. may be more important than ever for sourcing.
Velasquez continues later:
Though there’s been a 6.4 percent decline in denim imports to the U.S. from Mexico over the past two years, Carey questioned whether the current climate will move brands to take a closer look at nearshoring, particularly as the United States-Mexico-Canada Agreement (USMCA) is scheduled to take effect on July 1. Analysts, she added, expect this will increase exports by between 5 percent to 10 percent.
In the long term, Finkler said the agreement will increase textile exports, driving up the demand for innovation, investment, capacity and, ultimately, more jobs. “[USMCA] will position Mexico, once again, as the key player for growth and recovery to all of the brands that are looking to start sourcing and diversifying their supply chain,” she said.
The trade agreement is an opportunity to calm down the calamity brought on by the cancellation of NAFTA, compounded by the uncertainty of the coronavirus, Daniel said.
“Now more than ever, we need to have a strong supply chain in the Western hemisphere,” he said. “I think the USMCA is important because it allows us to continue to build a reliable and consistent textile supply chain for this hemisphere. It will solidify some trade rules and provide greater certainty for North American businesses that are operating and sourcing in Mexico.”
With the USMCA, Mexico will have a stronger investment framework and more transparency and protections for businesses that would like to operate within the U.S., which Daniel said may bring more stability in the upcoming year.
“Investments are usually tied to stability and so what our hope is, is that by passing the USMCA it will initiate more investment in Mexico and provide this hemisphere with production capabilities that can compete with Asia,” he said.
Positive effects, Maggard said, will likely be felt across the supply chain, from cotton farmers and fiber producers to machinery companies. And it may open up some additional opportunities for mills like Cone to begin to produce pocketing material that would have previously been imported. The cost to manufacture in Mexico, however, may rise slightly, he warns.
“I’m very hopeful that that does not drive some of the more price sensitive garment-makings out of the country,” Maggard said.
As industries begin their road to recovery post pandemic, Tobin said the supply chain has an opportunity to break free from restrictive “price and cost neutral mentality” that has plagued the industry. Nearshoring, he added, can take on a “more collaborative tone” between mills, brands and the retailers that still exist.
“In order to mitigate risks, you need to have proximity and logistical access to your supply chains,” he said. “That gives you more transparency and more control.”
Read more here.
