President’s Column Q2-2024

President & CEO Column

Over the past quarter, the Americas has been in the midst of various historic changes – economic, political and environment -that have the potential to shape the region for many years to come.

Growing tensions between the U.S. and China have prompted a growing number of companies to de-risk and nearshore their manufacturing operations from China closer to home.  U.S. concerns about Chinese EV auto makers flooding the U.S. market with lower cost and subsidized electric vehicles -including those made by Chinese manufacturers next door in Mexico- has prompted the Biden Administration to recently impose 100% tariffs on Chinese EVs.

On June 2nd, Mexico voters elected Claudia Sheinbaum as their next President giving her a landslide victory that included the election of a super majority from the Morena party to Mexico’s Congress and Senate.  With this strong electoral mandate, Mexico’s current President, Manuel López Obrador (AMLO) is now pressing for unprecedented changes to the Mexican Constitution in September before he leaves office that may include the election of all Federally appointed justices (including those for the country’s Supreme Court) by popular vote as well as the elimination of several independent governmental agencies, including the INE that is responsible for free and fair elections.  Much is riding on the decisions made by both AMLO and incumbent President Sheinbaum as well as the members of their Morena party in Congress in the months and coming years. 

 While Mexico remains among the preferred destinations for U.S. companies seeking to de-risk from China due to its geographic proximity to the United States and being a signatory of the USMCA trade pact, future nearshoring investment is not guaranteed.  Companies seeking to invest in Mexico want regulatory and legal certainty.  To calm investor fears, President elect Sheinbaum recently observed in her victory speech, “We will respect business freedom and honestly promote and facilitate private national and foreign investment that fosters social well-being and regional development, always guaranteeing respect for the environment.”   Expect serious money and companies to sit on the sidelines until political uncertainty in Mexico is sorted out and there is greater clarity.

Last month also brought extreme weather conditions across the Americas most pronounced by the historic flooding event that impacted the State of Rio Grande do Sul in Southern Brazil and its capital city, Puerto Alegre.   All told, over 2.4 million people have been affected across 476 Brazilian cities and towns with 68,000 displaced residents and 172 confirmed deaths as well as an expected cost of reconstructed exceeding US$3.7 billion.    At the same time, extreme drought conditions in Mexico are creating a water supply crisis in Mexico City that is putting the accessibility of water for some 22 million people at extreme risk.  The recent flooding event in Southern Brazil and Mexico City’s water crisis are harbingers of things to come across the Hemisphere.

Amidst this backdrop, IOA remained active this part quarter responding to the changing realities across our ever-changing region. In April, IOA released its report on opportunities for nearshoring in the CaliBaja region with a focus on five key sectors:  medical devices, semiconductors (PCBs, ATP), aerospace, EV battery manufacturing and pharmaceuticals. The report that I co-authored together with John Fry and IOA Diplomatic Fellow, Shane Christensen, was released in collaboration with the Burnham Center for Community Advancement at an event in San Diego in late April.  The report highlights the historic opportunity that Baja California as well as the broader CaliBaja region have to seize future nearshoring investment, but much will depend on the decisions of incoming Mexican President Sheinbaum to create the right conditions for this potential foreign direct investment (FDI) to occur which includes better regulatory certainty, expanded access to clean energy and water as well as addressing on-going security concerns.  

Related to the issue of nearshoring are questions regarding the future of the USMCA.   To better assess the future of this trade pact (a successor of the NAFTA), for the past year IOA has been a partner with the UC San Diego Center for U.S.-Mexico Studies and other institutions from Canada an Mexico in their leadership of the North American Competitiveness Working Group.  The working group’s collaboration recently concluded with a summary report penned by Meredith Lilly of the Ottawa-based Carleton University (which includes references to two IOA produced issue papers on nearshoring) is worth reading.

Responding to growing climate related risks across Latin America and the Caribbean (LAC), IOA led the organization of the Western Hemispheric Dialogue on Climate Adaptation in Sao Paulo, Brazil last week for participating cities of the U.S. State Department’s Cities Forward initiative.  The Dialogue was attended by municipal officials from the 24 LAC and U.S. city pairs involved in Cities Forward and included a special video address by Ricardo Gomes, Vice Mayor of Porto Alegre, who shared the current challenges his city is facing due to recent flooding.

This month, our Environment & Climate Change program also co-convened an important Un Dia por los Mares (One Day for the Seas) event in Mexico City in collaboration with UC San Diego’s Scripps Institution of Oceanography and National Geographic’s Pristine Seas program, attended by close to 200 key stakeholders and opinion leaders.

On the energy front, in April IOA’s Energy Program hosted its 5th annual Madrid Energy Conference, where the issue of decarbonization, carbon markets and changing geopolitics were key topics. Also, in May, IOA also organized the Argentina Energy Roundtable in Buenos Aires that included the active participation of senior officials from the U.S. Department of Energy.

Looking ahead towards next quarter, IOA has plans to release two forthcoming reports focused on nearshoring, the first to be released on July 16th examines the opportunities for future investment in pharmaceutical manufacturing in the CaliBaja region.  The second, a report to be issued on August 6th will look into the growing prevalence of organized crime and violence in Mexico and its potential impact on future nearshoring FDI to that country.  

Thank you for your on-going interest of the Institute of the Americas.  If you wish to support IOA’s on-going work across the Americas, please consider making a gift.

Sincerely,

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Richard Kiy
President & CEO