The peso was selling at just under 19.45 to the dollar at the close of trading on Monday
The Mexican peso appreciated for a fifth consecutive day on Monday to close at its strongest level against the U.S. dollar since 2020.
Buoyed by the expectation that the Bank of México (Banxico) will raise its benchmark interest rate by an additional 75 basis points on Thursday, the peso was selling at just under 19.45 to the dollar at the close of trading on Monday.
Banxico data shows that the exchange rate was the strongest end-of-day position for the Mexican currency since March 2020, when the cost of a greenback dipped below 19.4 pesos.
The peso appreciated 0.36% on Monday, increasing its gains over the past five trading days to 1.82%. It had weakened slightly to about 19.5 to the dollar at 9 a.m. Central Time on Tuesday.
Gabriela Siller, director of economic analysis at Banco Base, said that the current strength of the peso is related to the expectation that the Bank of México will once again follow the lead of the U.S. Federal Reserve and raise its key rate by 0.75%.
Banxico holds its monetary policy meetings the week after the Fed makes its rates announcements, and appears likely to match the U.S. central bank’s 0.75% hikes for a fourth consecutive time this Thursday as inflation – 8.5% in the first half of October – remains well above its target rate. The official interest rate in Mexico would thus reach 10%, more than double the 3.75-4% range in the U.S.
Siller said that another factor contributing to the peso’s strength is that significant amounts of money are flowing into Mexico in the form of payments for Mexican exports, remittances and foreign direct investment.
In addition, “the dollar has weakened a little” because the Fed is nearing the end of its tightening cycle, she said.
“Few interest rate increases remain, and even though there continues to be a restrictive monetary policy [in the U.S. for now], the light at the end of the tunnel is now visible,” Siller said.
The analyst said that the peso could strengthen further if Banxico lifts rates by more than the predicted 0.75% this Thursday, or if it indicates in its monetary policy statement that it will continue along an aggressive tightening path. Such a scenario could see the peso strengthen to 19.2 to the dollar, Siller said.
Looking further into the future, the deputy director of economic analysis at the brokerage house Vector said that the Fed is likely to start cutting rates before Banxico, and such a situation would benefit the peso.
“It’s becoming increasingly clear to the market that when we reach the interest rate peak in Mexico and the United States, it’s very probable that the United States will think about lowering … [rates] before Mexico. … That issue … helps the exchange rate [here],” Luis Adrián Muñiz said.
Muñiz, Siller and Monex analyst Janneth Quiroz – all of whom were cited in an El Economista newspaper report – agreed that the peso could also benefit from an additional decrease in the inflation rate in the United States. If data to be published this Thursday shows that the annual rate in the U.S has declined for a fourth consecutive month, the dollar will weaken, giving the peso more scope to appreciate, they said.
The British bank Barclays offered a rosy forecast for the peso late last month, saying that it could appreciate to 19 to the U.S. dollar by the end of next year. In contrast, Moody’s Analytics said earlier in October that the peso could depreciate 20% against the U.S. dollar in the coming months due to tightening monetary policy in the United States.
The peso has been one of the best performing currencies in 2022, gaining over 5% against the dollar at a time when many other currencies have lost ground against the greenback, which is seen as a safe-haven currency in times of economic uncertainty.
Pillar of American manufacturing and consumerism looking wobbly
The trans-Pacific trade lane connecting the world’s most important countries is a pillar of the global economy. But now it’s becoming an epicenter of supply chain, financial and geopolitical risk.
During the pandemic, ocean container spot rates rocketed upward from approximately $1,000 per 40-foot container to nearly $20,000 last fall before plunging again to $2,720 last week.
Meanwhile, U.S. officials staged visits to Taiwan and took action to further separate the Chinese and American semiconductor sectors. This potent combination of economic, political and military issues will make trans-Pacific business complicated for years to come.
China’s zero-COVID policies and recent tensions over Taiwan have accelerated this confrontation, which could lead to further decoupling between the U.S. and China. But the fundamental issues will likely persist beyond present crises.
The American media coverage of President Xi Jinping’s address to the 20th Communist Party Congress in Beijing last week took note of Xi’s pessimistic tone, warning party members to prepare China for confrontation and crisis. Politico’s Phelim Kine called Xi’s view of U.S.-China relations “increasingly bleak.” Bret Stephens played into the rivalry, writing a cynical op-ed in The New York Times sarcastically thanking Xi for running his country so poorly as to make the United States seem good by contrast.
Counter-signaling Xi’s message of a Chinese “national rejuvenation,” U.S. Secretary of State Antony Blinken was at the same time giving speeches at Stanford University in a tour carefully packaged around a national-strength-through-technology theme. Blinken visited the SLAC National Accelerator Laboratory then spoke at a Hoover Institute event with former Secretary of State Condoleeza Rice, who is now the Hoover Institute director. Most strikingly, Blinken said China was “determined to pursue reunification [with Taiwan] on a much faster timeline” — a statement that made headlines.
Blinken’s visit to Stanford seems to be part of a general effort from the Biden administration to nationalize technology policy and shape the technology industry into an asset that could be useful in a China conflict. Blinken announced his creation of the State Department’s Bureau of Cyberspace and Digital Policy in April. In August, President Biden signed the CHIPS and Science Act, which will spend $280 billion on U.S. semiconductor infrastructure.
China’s zero-COVID policy fighting losing battle
But before we give too much thought to strategic industrial policy, we should recognize the most immediate impact to supply chains and the trans-Pacific trade that the Chinese president’s third term will have: the continuation of Xi’s signature zero-COVID policy for the foreseeable future.
China’s draconian surveillance and control regime of tests, quarantines and lockdowns — enabled by a collaboration between the Chinese Communist Party (CCP) and China technology companies — seemed to work well enough for a year. Xi’s policy held down infection rates and kept the economy pointed up and to the right.
But when the Omicron variant’s greater infectiousness overwhelmed mask and vaccine protections, China kept forcefully applying lockdowns, massively disrupting both its own economy and trans-Pacific trade in general.
Although the Chinese state adapted its tactics on a case-by-case basis — the 2022 lockdown of Shanghai, for instance, kept critical infrastructure like the container terminals operating in ways that the 2021 lockdown of Yantian did not, for example — the governance mechanism was the same. Centralized algorithms looked for signals in endless oceans of public health, location and social media data. As a result, recommended policy actions were increasingly ineffectual and mismatched to realities on the ground.
Tokyo-based freelance writer Dylan Levi King explored the deep roots of this data-driven, centralized electronic command and control system in a recent article for Palladium Magazine called “The Genealogy of Chinese Cybernetics.” King reconstructs the career of Qian Xuesan, author of “Engineering Cybernetics” (1954), from Pasadena, California, to Beijing and his role in building the computer systems and algorithmic models that justified China’s “Great Leap Forward” and the one-child policy.
As King wrote, the implementation of these policies fell far short of the dream of optimized, electronic, frictionless command and control: “Political attempts at cybernetic planning — both in China and elsewhere — have never overcome the problem of limited sensors and weak effectors.” Though he doesn’t refer specifically to the pandemic, the unintended consequences of a zero-COVID policy, including food shortages, real estate insolvency and bank runs seem to validate it as a further example of this governance style’s inadequacy.
The consensus of the international financial community, as Bloomberg’s John Authers wrote, is that China’s zero-COVID policy under Omicron has been a disaster casting a pall over the global economy. The Hang Sen Index, which measures the health of the Hong Kong stock market and its largest companies, is down 46% since its Feb. 19, 2021, peak. It is threatening to dip below its 30-year support level. Zero-COVID has created downstream supply chain issues with widespread, long-lasting and unpredictable effects on the earnings of U.S. and European companies, from automakers to big-box retailers.
US-China relations have weakened for more than decade
But whether or not Xi rolls back his zero-COVID policy or not, the future of the trans-Pacific is troubled.
All signs point to escalating confrontation between the United States and China over Taiwan, but the seemingly cheery relationship between the two giants has been shifting — sometimes quickly, sometimes slowly — for years, dating back to the Obama administration.
Recall that one of the reasons given for former President Barack Obama’s withdrawal from Iraq and Afghanistan was to enable the “pivot to Asia,” the continent that Obama identified as the future center of gravity of the global economy in terms of population and gross domestic product. These weren’t just words. Obama moved 2,500 Marines into northern Australia and designed the Trans-Pacific Partnership, a trade agreement with smaller regional powers meant to isolate China.
Former President Donald Trump’s tariffs, which eventually escalated into a medium-sized trade war with China and a series of smaller skirmishes with Canada and the European Union, set off panicked behavior by U.S. importers that roiled the trans-Pacific. Companies accelerated the timelines on their purchase orders, “pulling forward” shipments that were originally scheduled to arrive after new tariffs took effect in order to avoid paying the duties. A logjam of volume increased rates, reduced schedule reliability, congested ports and filled warehouses, especially in Southern California.
In summer 2018, when the pull-forward effects were felt, the U.S. truckload market was still on fire, having been catalyzed by Hurricane Harvey the previous year and the ELD mandate’s tightening effect on capacity. The unpredictable volumes coming out of some of the country’s most important freight markets undoubtedly kept truckload rates higher for longer before the market ultimately began rolling over in October.
Expect more military activity
Although Trump sometimes styled his protectionist tariffs as merely the pragmatic bargaining chips of a consummate dealmaker looking out for the American people, his military moves revealed a deeper, strategic understanding of the trans-Pacific. His administration, for example, emphasized the U.S. Navy’s ability to secure vital trade routes. Navy patrols in heavily trafficked areas and freedom of navigation exercises increased, placing additional pressure on those operations to perform.
When the Navy looked sloppy, heads rolled. In summer 2017, the U.S. Seventh Fleet, a forward-deployed and based in Yokosuka, Japan, and centered on the USS Ronald Reagan’s carrier strike group, suffered two accidents. The Arleigh Burke-class guided missile destroyer USS Fitzgerald collided with a commercial vessel in July off the coast of Yokosuka. The next month, another Arleigh Burke, the USS John McCain, collided with a commercial vessel near the Strait of Malacca off Singapore. Between the two accidents, 17 American sailors were killed.
Trump’s chief of naval operations, Adm. John Richardson, responded by effectively purging the Seventh Fleet and the larger U.S. Pacific Fleet. The Navy fired or retired the destroyer commanders and executive officers, as well as commander of the Seventh Fleet, Adm. Joseph Aucoin. Then Richardson told Adm. Scott Swift, commander of the Pacific Fleet (of which the Seventh is a part), that he wouldn’t be considered for promotion to the Indo-Pacific Command, so Swift announced his retirement.
The point had been made: U.S. Navy leaders were personally responsible for keeping up with the heavier demands made on security operations in vital trans-Pacific trade lanes.
Beginning in the Obama administration and continuing through the Trump and Biden administrations, the United States has exhibited a growing awareness of the trans-Pacific as not only a trade conduit but also a theater for competition and perhaps conflict. Diplomatic, economic, technological and military steps have been taken that suggest the United States is exploring how it can maintain its interests in the Pacific region without China’s cooperation or consent. The most recent flare-ups are the kind of incidental accelerants that were bound to occur during this more gradual paradigm shift in U.S.-China relations.
Supply chain chaos to ensue
Apart from overt military encounters, I’ll be watching a few key themes going forward: increased volatility in supply chains, in terms of freight volumes; capacity availability and transportation rates; less visibility into China’s economic activity; and a more diverse, less China-centric trans-Pacific trade.
I expect the U.S.-China rivalry to express itself through gamesmanship in a number of spheres, including technology, international law, diplomacy, trade practices and military posture. The uncertainty and chaos of this changing trans-Pacific paradigm — from decades of decreasing friction and lower costs to a new trend of increasing friction and higher costs — will drive unpredictable and disruptive shipper behavior similar to that seen in 2018, 2020 and 2021. Stockouts will be followed by inventory gluts and vice versa, as importers pay too much to move their goods that are stored too long and arrive too late, compressing gross margins.
At the same time, outsider observers will likely see less of China’s real economic activity. Last year, China cut off foreign access to automatic identification system (AIS) data, preventing companies from seeing the real-time location of commercial vessels in Chinese waters. Official reports on economic activity coming out of Shanghai during the last COVID lockdown were anything but transparent, and much Western analysis relied on anecdotes and alternative data sources.
Leland Miller, the CEO of China Beige Book, a firm that tabulates independent Chinese economic data, said last week that the country was undergoing a “paradigm shift” in its governance and economic models that will complicate its further development, including the end of debt-fueled growth. It will be difficult to track this shift accurately, given the unreliability of official data.
Finally, if the U.S. and China decide to pursue a policy of mutual divestment, we should expect a more diverse, less China-centric trans-Pacific trade. There are other exciting economies in the region that the United States is connected to, including Vietnam, the Philippines, Taiwan, Korea, Japan and Indonesia. Eastbound freight flows may have more widely distributed origins as China’s share diminishes. Ports like South Korea’s Busan, Malaysia’s Port Klang, Taiwan’s Kaohsiung and Japan’s Yokohama could become relatively more important.
The change in network structure could threaten the stability of the container-ship alliances that control capacity in the trans-Pacific and make the 20,000-plus twenty-foot equivalent unit mega-ships built to serve the largest ports harder to fill and less competitive. Capacity could structurally loosen on what are now the densest lanes, like Shanghai to Los Angeles, while slots could be harder to find on more obscure but growing lanes. The upshot here is that even a prudent trade strategy seeking to de-risk China by sourcing goods in other Asian countries will be exposed to knock-on effects from the challenges the U.S.-China trade is fated to face.
Importers and their transportation providers will need to build links between operations teams and strategic planners so that emerging trends in markets can be identified. Tariffs, embargoes and many other forms of economic warfare are potentially on the table.
For 20 years, the trans-Pacific was relatively easy, boring and cheap. Now it’s becoming exciting, difficult and expensive — and will probably stay that way for some time to come.
All the 12 rail unions must ratify any new agreement to avoid a potential work stoppage
Another rail union has rejected a tentative agreement with the major freight railroads, becoming the second labor group to turn down the deal brokered by the Biden administration and raising the chances of a nationwide strike.
The Brotherhood of Railroad Signalmen (BRS) announced Wednesday its members voted against ratifying their new contract by a 60.57% to 39.23% margin, with the highest participation rate in the union's history.
Freight trains travel through Houston on September 14, 2022 in Houston, Texas. (Photo by Brandon Bell/Getty Images / Getty Images)
The BRS members join the Brotherhood of Maintenance of Way Employees Division of the International Brotherhood of Teamsters (BMWED) in turning down the proposed contracts providing workers rail workers a 24% wage increase during the five-year period from 2020 through 2024, increasing the possibility of a work stoppage.
The National Carriers' Conference Committee (NCCC), which represents major railroads like BNSF, CSX, Norfolk Southern and Union Pacific, said Wednesday it was disappointed with the BRS vote, but both sides agreed to keep negotiating until early December.
||UNION PACIFIC CORP.
||NORFOLK SOUTHERN CORP.
Union rail workers opposed to the tentative agreement negotiated by President Biden's Presidential Emergency Board (PEB) are unhappy that the deal did not do more to address quality of life issues, particularly a lack of sick time and working on skeleton crews.
A worker rides a rail car at a BNSF rail crossing in Saginaw, Texas, Wednesday, Sept. 14, 2022. (AP Photo/LM Otero / AP Newsroom)
Multiple union members told FOX Business they are frustrated that their union representatives signed off on the PEB's recommendations, arguing the agreement did not do enough to improve working conditions.
All twelve unions involved in the negotiations must agree to ratify their new contracts or a strike could occur that would devastate supply chains and the economy at large. At present, the soonest a strike might happen is mid-November. If a work stoppage is triggered, Congress is expected to get involved.
So far, six unions have voted to ratify their contracts, and now two have voted against. The remaining four unions are set to vote next month.
The United States has less than one month’s supply of diesel fuel, according to data from the Energy Information Administration.
Even as the nation has a mere 25 days of inventory, marking the lowest levels since 2008, the four-week average of distillates supplied, a proxy for demand, rose to its highest seasonal level since 2007, according to an analysis from Bloomberg.
The low supply and high demand comes as Americans, many of whom are concerned about the state of the economy, prepare to cast their ballots in the upcoming midterm elections. National Economic Council Director Brian Deese acknowledged to Bloomberg that inventories are “unacceptably low” and affirmed that “all options are on the table” for the White House to address the problem.
The depleted supplies occur because of maintenance season at many refineries and pressures from the Russian invasion of Ukraine. However, two ships carrying 1 million barrels of diesel are slated to arrive in New York, while a Pennsylvania refinery belonging to Delta Air Lines is returning from seasonal maintenance.
Inventories in the northeastern United States, where more residents burn fuel for heating than any other part of the country, are at less than one-third of usual seasonal levels. The diesel shortage comes after the Energy Information Administration said last week that the average household primarily using natural gas for space heating will likely spend $931 on power from October to March, marking a $206 increase since last year.
With a greater energy density than other liquid fuels, diesel enables the majority of shipping activity in the United States via semitruck and train, as well as large shares of military and farming activity. The national average cost of diesel fuel is presently $5.33 per gallon, according to data from AAA.
In response to soaring energy prices, which have contributed to overall inflationary pressures, President Joe Biden announced in March that his administration would release 180 million barrels from the Strategic Petroleum Reserve, a stock of emergency crude oil intended to manage supply disruptions in energy markets. Transactions for the final 15 million barrels will clear by the end of December.
“Global crude oil supply flows remain a challenge, due in large part to the ongoing instability caused by Russia’s actions in Ukraine,” the White House said in a statement. “The President is prepared to authorize significant additional sales in coming months if conditions require.”
Biden has also presided over a decrease in the Strategic Petroleum Reserve from 638 million barrels to 405 million barrels, marking the lowest level in decades, according to data from the Energy Information Administration. Though the release is primarily meant to cut domestic energy prices, at least 5 million barrels have found their way to nations such as India, the Netherlands, and Italy, as well as a Chinese petroleum company with links to Hunter Biden.
Roughly 84% of Americans consider the economy to be a primary factor on their minds as they cast ballots in the midterm elections, according to a recent poll from ABC News and The Washington Post. The Republicans lead the Democrats by a 16% margin and a 19% margin with respect to trust on handling the economy and inflation, respectively.
Biden has emphasized green energy throughout his tenure while leasing less federal land for oil and gas drilling than any administration since the end of World War II. Soon after his inauguration, Biden also discontinued Keystone XL pipeline project expansions.
Officials from across the San Diego-Baja California region on Friday celebrated a painstakingly negotiated binational agreement for collecting tolls at the envisioned new Otay Mesa border crossing.
The deal — unanimously approved by the San Diego Association of Governments board of directors — calls for one tolling facility located north of the border. The revenue would be split evenly with Mexico, pulling in an estimated $3.4 billion for each country over the next four decades.
“The financial strategy that’s being presented here is the result of months of nonstop meetings and bilateral negotiations between the U.S. and Mexico,” Carlos González Gutiérrez, consul general of Mexico in San Diego, said at SANDAG’s board meeting on Friday. “This is U.S. and Mexico cooperation at its finest.”
The roughly $1.47 billion project is aimed at dramatically reducing wait times as well as emission-spewing idling at the two current ports of entry in Otay Mesa and San Ysidro.
The new facility, dubbed Otay Mesa East, is expected to open in 2024, providing 10 lanes in both directions serving passenger and commercial traffic, according to SANDAG. Average crossing times at the new facility are projected to be from five to 25 minutes for passenger vehicles and 15 to 45 minutes for freight traffic.
Toll pricing would fluctuate with traffic to discourage gridlock. Signs would alert approaching drivers to crossing fees as well as wait times.
County Supervisor Nora Vargas said at Friday’s meeting that she remembered waiting for long stretches as a child to cross the border in San Diego.
“This is a historic moment for all of us who call this region home because what we want is to make sure that everybody in this community has access not only to economic opportunities but clean air and a good quality of life,” she said.
The project reached a milestone this summer with the completion of the connecting highway network, which included work on state routes 125, 905 and 11.
The border facility broke ground in August and a month later secured a crucial $150 million in federal funding.
However, the new port of entry is not yet fully funded. While SANDAG has secured $719 million for the project, the agency is still looking for another $418 million, largely through loans and grants.
Likewise, Mexico has ponied up $315 million but still needs to find another $20 million to complete the deal.
Congress also needs to approve additional funding for Customs and Border Protection staffing to operate Otay Mesa East, according to officials.
“This is certainly not mission accomplished,” said San Diego Mayor Todd Gloria at the public meeting Friday. “There are many more steps to go. Mainly I’m focused on that our federal partners provide the staffing to make sure this port of entry can work.”
Many companies such as Samsung, Nike and Amazon operate factories in Tijuana that ship goods over the border. It’s estimated that reducing lengthy wait times could increase economic output in both countries by up to roughly $3.4 billion a year and create tens of thousands of jobs.
Otay Mesa East’s 120-acre site is larger than the combined footprint of the existing border crossing facilities in San Ysidro and Otay Mesa. Officials said that new lanes could be added in the future to accommodate more growth.
“We’re planning for the future,” said Mario Orso, chief deputy district director-capital of Caltrans District 11. “There are no other places to grow our border infrastructure in the future in San Diego County, so this is our last shot.”
Last week, Democratic lawmakers Ro Khanna and Zach Wahls wrote an op-ed in The Economist that outlined their vision for the Democrats to win the fast-approaching midterms and other future elections: try to win back districts in the industrial heartland that were once Democratic strongholds, but have since shifted decisively to the Republican Party under Donald Trump.
"Americans in areas hit hard by deindustrailization feel abandoned by the Democratic Party," they write. "Democrats must demonstrate that we are the party that is taking action to revitalize America's factory towns."
To win over these areas, Khanna and Wahls argue that Democratic candidates should highlight their recent legislative wins, including the American Rescue Plan and the Bipartisan Infrastructure Act, which have funneled billions of dollars into distressed towns, installing broadband internet, fixing roads and bridges, and so on. Even more, they argue, Democrats "should own up to, and reverse, the disastrous trade and economic policies (adopted by both parties) that have devastated America's factory towns."
The anti-free trade sentiments expressed by Khanna and Wahls are pretty much standard in American politics these days. Once an area for bipartisan enthusiasm, free trade has become a third rail. It's no wonder why President Biden has largely followed in President Trump's protectionist footsteps: important electoral districts in America's industrial heartland feel burned by the trade policies of the past.
But in a forthcoming book, The Globalization Myth: Why Regions Matter, author Shannon O'Neil argues that it's a huge mistake for the United States to turn against free trade and try to go it alone in the global economy. Instead, she argues, for the nation to become more globally competitive and create good jobs, we must find a middle ground on trade, embracing Canada and Mexico and working with them to beef up regional supply chains and our collective productive capacity.
The North American Manufacturing Hub
Despite the popular use of the term "globalization," O'Neil argues, what we've seen more than anything else over the past four decades is regionalization. Three regional manufacturing hubs have emerged in that time: Asia, Europe, and North America. And while Asia and Europe have done lots of work to foster and invest in supply chains in their regional hubs, she argues, North America has lagged behind.
O'Neil begins her book with one of the factory towns that has been devastated by deindustrialization: Akron, Ohio. Before falling on hard times, Akron was "the Rubber Capital of the World," producing about 60% of the globe's tires. In the 1980s, however, tire companies began leaving Akron, and the community slipped into a downward spiral.
"It is easy to peg Akron as a victim of globalization," O'Neil writes. But the problem, she argues, wasn't really free trade; it was largely "the United States' limited regionalization," which damaged the economic viability of continuing to do business in Akron as the global tire market got more competitive.
With the help of the pro-trade policies of their governments, O'Neil writes, tire and other automotive companies based in Japan and Germany and France developed regional supply chains that gave them a competitive edge. The United States, she says, hadn't yet pursued the North American Free Trade Agreement, which would eventually foster the creation of a production complex spanning the United States, Canada, and Mexico. "With NAFTA negotiations still a decade away, Akron's companies had no partners to turn to in the face of burgeoning Asian and European manufacturing supply chains," O'Neil writes.
In O'Neil's telling, NAFTA, while imperfect, was exactly what US manufacturing needed to continue competing on the global stage. After it passed, trade between the US, Mexico, and Canada quadrupled and, she says, the US manufacturers that embraced regionalism thrived.
O'Neil uses the auto industry as one of her primary examples. She considers it one of the most regionally integrated industries in North America. After NAFTA brought down tariffs and made it cheaper and easier for US automakers to move parts across borders, those companies were able to construct strategic supply chains that kept them globally competitive. Sure, O'Neil says, some labor-intensive manufacturing went to Mexico, where labor is cheaper, but that helped US automakers compete against Asian and European competitors and the United States — and US workers — remained an integral part of the supply chain.
She says just look at how the Ford Edge SUV is manufactured: "Its seats start life in Tennessee, where locally made foam cushions are covered with fabric from South Carolina and embellishments from Ciudad Juarez," O'Neil says. "The seats are attached to rails molded in Matamoros, and shipped to Ontario to be fitted to metal frames. The Edge's braking system, battery, engine, and transmission all make their way to the final assembly line along similarly convoluted — but almost entirely North American — paths."
As a result of NAFTA, O'Neil says, the struggling American auto industry turned around and began booming again. Far from seeing an exodus of auto jobs, the United States saw the creation of tons of new jobs. The supply chain, diverse workforce, and access to consumers provided by the North American regional hub created an industry so vibrant that even foreign automakers, like Toyota, began outsourcing to the United States. Toyota opened up plants in places like Buffalo, West Virginia, Alabama, and Texas. "Eleven of Toyota's fifteen North American plants are in the United States," she writes.
Embracing regional trade in more sectors, and investing in infrastructure to facilitate more trade, O'Neil argues, will help the American workforce thrive in the face of competition from Asia and Europe. Even when US companies outsource some manufacturing to Canada and Mexico, many of the parts (or "intermediate goods") will continue to be made in the United States. "When US companies buy and sell within North America, more work stays at home than if they set up shop farther away," O'Neil writes. "And these jobs aren't just researchers, marketers, or headquarter managers; they are also machinists and assembly-line workers in U.S.-based supplier factories."
O'Neil writes that the average import from Mexico is "40 percent US made," meaning that 40 percent of the parts that go into the end product are still produced in the US. The average Canadian import, meanwhile, is 25 percent made in the US. "As for a product coming in from China? Just 4 percent of it was made in the USA," she writes. It's a big reason why, she argues, studies have found trade with China killed millions of American jobs and destroyed towns in the industrial heartland, yet studies of trade with Mexico and Canada "have found limited effects on jobs and communities."
"When factories open in China, Vietnam, Poland, or Romania, U.S. suppliers don't get any extra orders," O'Neil writes. "When plants open in Mexico and Canada, they buy more parts and inputs from the United States to feed into their assembly lines than from anywhere else in the world."
The way O'Neil sees it, NAFTA was a success story, and she bemoans the fact that the United States has not continued building on that success. Sure, President Trump did sign the United States-Mexico-Canada Agreement (USMCA) in 2020, which modernized NAFTA, but, O'Neil argues, the agreement has too many protectionist elements, and it doesn't go far enough to bring North America together and help it compete with the Asian and European manufacturing hubs.
"The United States continues to be less integrated with its neighbors than its European or Asian commercial rivals, as more of its trade still goes to countries outside its region than within it," she writes. She argues the United States should do more: invest in crumbling infrastructure on our borders, reduce tariffs on more sectors, cut red tape preventing greater integration, increase the numbers of workers who can work across borders, and foster friendlier relations with Canada and Mexico to develop a continental strategy.
"Exploiting the three countries' variations in capital, labor, and natural resources, in sources of information and clusters of innovation, allows North American companies to make products faster, cheaper, and better than they could in one nation alone," O'Neil writes. "Integrating North America creates a larger home market and lets U.S. suppliers benefit from Canada's and Mexico's more expansive free-trade agreements with the world. That will create and protect U.S. jobs."
O'Neil is bullish on the future of manufacturing in the United States if it remains open to the world and embraces its neighbors. She stresses that labor costs are rising in Asia and Europe, as their population growth slows and they have fewer workers to do jobs. Moreover, as machines become more and more important to production, the US technological edge over competitors will help it become an even bigger manufacturing powerhouse. "The United States can handle competition," she writes. "But it will be easier and done better with partners."
Of course, there are probably many Americans — especially in politically important factory towns dotting the industrial heartland — who won't buy O'Neil's argument, or at least, won't believe that any kind of free trade could possibly help them. Even O'Neil acknowledges the politics of implementing her regionalist vision are tricky.
SAN DIEGO (Border Report) — Since April, the number of asylum-seekers allowed to cross the border from Tijuana into San Diego has gone up by 10 times, according to the National Institute for Migration in Baja California.
The agency says in April, only 393 migrants were given permission to cross the border through Ped West, one of two pedestrian crossings at the San Ysidro Port of Entry.
Last month, that number jumped to 4,075.
The migrants being allowed to cross the border are getting what’s called humanitarian parole due to illnesses, disabilities, political or organized crime persecution, says Enrique Lucero Vázquez, director of Tijuana’s Migrant Affairs Office.
Lucero stated members of the LGBT community are also getting access due to their vulnerability back home.
He made those comments during a news conference attended by a federal official named Alejandro Ruiz Uribe, who said the majority of the asylum-seekers are from the Mexican state of Michoacán.
The area has become a battleground for cartels who are fighting over control of the avocado industry.
According to Uribe, more than 2,500 Haitian refugees have also been given permission to cross into the U.S., followed by 440 migrants from Honduras.
One of the nation’s largest railroad unions has rejected a contract with freight carriers, once again raising the possibility of a strike and the profound economic implications that go with it.
The rejection by the Brotherhood of Maintenance of Way Employes Division announced Monday comes just weeks after the Biden administration helped broker a deal between several unions and rail carriers, averting a walkout that could have debilitated the U.S. supply chain and hampered passenger service.
Members of the third-largest rail union rejected the proposed five-year contract 56 percent to 43 percent, officials said. Both sides have agreed to resume negotiations until at least Nov. 19, and railroads are expected to continue operating normally in the meantime.
President Biden was personally involved in the talks — as were three of his Cabinet secretaries, his top economic adviser and his chief of staff — that led to the deal hammered out last month. He hailed it as a win for both carriers and workers.
But many union members were skeptical from the start, with some telling The Washington Post that the details were opaque. The plan included a 24 percent pay increase by 2024 — bringing the average wage to $110,000 a year — and $1,000 annual bonuses for five years. It also ensured health-care co-pays and deductibles would not increase.
But it seemed to include only one paid sick day, even after union leaders had pushed for 15.
“Railroaders are discouraged and upset with working conditions and compensation and hold their employer in low regard. Railroaders do not feel valued,” BMWED President Tony D. Cardwell said in a statement Monday announcing the vote outcome. “They resent the fact that management holds no regard for their quality of life, illustrated by their stubborn reluctance to provide a higher quantity of paid time off, especially for sickness.”
The tentative pact stemmed from two years of negotiations between the carriers and unions, and the White House appointed an emergency board in early July to mediate. One of the sticking points was a points-based attendance policy adopted by some of the largest carriers earlier this year. Those policies can penalize workers for missing work for routine doctor’s appointments or family emergencies.
Workers had pushed for more flexibility in this area, and some seemed disappointed when the tentative deal appeared to include only one paid sick day.
The proposed deal was celebrated as a big achievement for Biden, who has pledged to be the “most pro-union president” in U.S. history. On Tuesday, a White House spokeswoman said that Biden remains focused on avoiding a rail shutdown.
“We stand ready to support the parties in their efforts, and continue to urge both sides to finish their work and avoid even the threat of a shutdown in the future,” Robyn Patterson said in an emailed statement to The Post.
A railroad strike would have major implications for shipping and commuter operations across the country, especially leading into the busy holiday shipping season. It could also spawn layoffs and further impair the already struggling supply chain.
The two largest rail unions will soon cast their votes on the proposed agreement. One of them, the Brotherhood of Locomotive Engineers and Trainmen, released a notice to members this weekend, seeking to dispel what President Dennis R. Pierce called “misinformation and misrepresentations” spreading about the deal.
“There are groups, many from outside our Union, working overtime pushing outright lies about the tentative agreement, how it was reached, and what the membership should do next,” he wrote.
He urged members to vote, “regardless of how you view the tentative agreement.”
The National Railway Labor Conference, the coalition representing rail carriers, said in a statement that it was “disappointed” by the BMWED vote, but emphasized that a strike would not occur immediately.
A total of 12 unions need to agree to deals with carriers. Four smaller rail unions, including the American Train Dispatchers Association, have done so and a fifth has renegotiated a new tentative agreement, according to the Associated Press.
SAN DIEGO (Border Report) — Earlier this month, California Gov. Gavin Newsom vetoed a bill that would have dramatically improved water quality in two problematic areas along the California-Mexico border.
The bill included $50 million to clean up the New River, which runs from Baja California to the Salton Sea near Palm Springs and another $50 million for the Tijuana River Valley.
The Tijuana River Valley has been plagued for decades with trash, debris, chemicals and raw sewage from Mexico that end up north of the border, with much of the pollution flowing into the Pacific Ocean.
“That was supposed to stop sewage flows and trash coming across the border,” said Imperial Beach Mayor Serge Dedina. “Unfortunately, Gov. Newsom vetoed that legislation and funding.”
Dedina’s city has traditionally been the most affected by the materials, especially the raw sewage, that comes from Mexico forcing beach closures in Imperial Beach.
“This has been the worst summer,” said Dedina. “The day we heard about the veto there was another 120 million gallon sewage spill that had just followed a 600 million gallon flow. The governor might as well had hit us with a sledgehammer.”
Dedina stated that he and his constituents feel “demoralized” by the governor’s veto.
“Our southern part of the beach has been closed 100 percent of the time this year, the main part of our beach 135 days, and Coronado has been closed up to 60 days most of the summer,” he said.
Dedina described Newsom’s actions as “adding insult to injury” and a “nail in the coffin.”
“People think we’ve been abandoned by the state of California,” Dedina said. “We thought the state of California was our ally in this and it looks like, ‘really, we’re not interested in helping you at all’ and that’s really unfortunate.”
The Environmental Protection Agency has already pledged hundreds of millions of dollars for cleanup efforts along the Valley, money that will be spent on both sides of the border, but the work is years away.
Dedina said money from the state would have gone a long way.
“Every bit helps,” he said.
Newsom reportedly said he vetoed the bill out of concern the state is looking at lower than predicted revenue for the upcoming fiscal year.
“My Administration remains committed to addressing water quality and environmental equity issues at cross-border rivers, which is why I have supported funding this work,” said Newsom. “However, with our state facing lower-than-expected revenues over the first few months, it is important to remain disciplined.”
Newsom also stated California has already given $35 million to address the Tijuana and New River pollution issues in the last two years, money that hasn’t been spent.
MEXICO CITY (AP) — Mexico’s Senate passed a bill early Friday handing control of the country’s recently created National Guard over to the military.
When the National Guard was created under a Constitutional reform in 2019, it was placed under civilian control. But most of its training and recruitment has been done from within the army.
President Andrés Manuel López Obrador says the guard must now be under military command, to prevent corruption. The lower house of Congress already approved the measure, and López Obrador is expected to sign it into law.
Opposition parties said late Thursday they will file court appeals, claiming the measure violates the Constitutional guarantee on civilian control.
“Public safety is not achieved by violating the rule of law, by violating the Constitution,” said Sen. Claudia Anaya Mota, of the Institutional Revolutionary Party, who vowed that opposition would quickly file a court challenge.
For years, Mexican politicians had widely agreed the country needs to improve its often corrupt, underpaid and ill-trained civilian police forces, and stop relying on military forces to fight drug gang violence. Even López Obrador had, earlier in his career called for soldiers to return to the barracks. He later said he changed his mind.
In 2019, the president dissolved the old civilian Federal Police and promised the National Guard — which unlike the United States, is completely federal and never commanded by state governors — would remain under the control of the civilian Public Safety Department.
But that created a bureaucratic headache for the armed forces, who supplied most of the National Guard officers from the ranks of the army and marines; those officers retained their place in the military, and were considered on-loan to the new force.
López Obrador no longer has enough votes in the Senate to change the constitution once again — that would require a two-thirds majority — and so his party simply changed the secondary laws governing the guard on a 71-51 vote.
Amnesty International said Friday’s vote “will lead to more human rights violations.”
“We have already seen the disastrous results of the militarization of public security forces in Mexico over the last 16 years,” Edith Olivares Ferreto, director of Amnesty International Mexico, wrote in a statement, referring to rights violations and increased violence.
Of the more than 110,000 members of the National Guard, more than 80 percent came from the army and the navy. The National Guard is only functioning because of the military leadership that organized it and the military’s extensive logistics capabilities.
The president has given the military more responsibilities than any Mexican leader in recent memory putting them in charge of not only battling drug cartels, but also fuel theft. He had them build a new airport for the capital and a tourist train on the Yucatan Peninsula. They build bank branches in rural areas and were key in the government’s response to the COVID-19 pandemic.
The military has been in the streets in a critical security role for years, well before López Obrador took office. It has been accused of human rights abuses and the United Nations has long called for it to be taken out of policing.
Neither the National Guard nor the military have been able to lower the insecurity in the country, however.
Critics say the National Guard lacks the investigative and intelligence capacities of a police force. They are a visible presence on patrols and respond to violence, but do little to prevent it.