Economic security is at the heart of decisions made by individuals and families who make the choice to leave their homes in search of safe access to economic opportunities. Economic security explains much of international migration. Economic security also explains the geographic allocation of resources and output across the world. It is a key determinant in a firm’s decision to invest and operate in a country.

As the US Department of Homeland Security highlights in explaining the topic of Economic Security, “America’s and the world’s economic prosperity increasingly depends on the uninterrupted flow of goods and services, people and capital, and information and technology across our borders”.

Imposing additional tariffs on goods that cross the US-Mexican border will not address the root cause of Central American migration to the Unites States – lack of economic security. In fact, the US Administration’s use of the International Emergency Economic Powers Act (IEEPA) to enact a tariff that will incrementally increase from 5 to 25% on all imports from Mexico over time will create significant economic insecurity on BOTH sides of the US-Mexican border. That’s because in order to remain competitive in the global marketplace, US and Mexican goods are made regionally with intricate supply chains that cross the US-Mexican border. In some industries, like automotive, parts can cross the US-Mexican border as many as 7 times before a final good is complete. The uninterrupted flow of goods and resources across the US-Mexican border is essential to North American manufacturing and chemical manufacturing in particular.

Chemicals are INPUTS to manufactured goods. When the competitiveness of industries downstream is reduced, this, in turn, negatively impacts chemical manufacturers. When downstream industries shutdown, chemical manufacturers shutdown. They cannot continue to operate without downstream demand. Economic activity and jobs are at stake. The US chemical industry employs more than half a million people. Many of those jobs depend directly on the ability to trade with Mexican partners.

U.S.-made exports of chemicals to Mexico - $23 billion in 2018 – could face retaliatory tariffs soon after the U.S. tariffs go into effect on June 10 and could match the incremental increases of the U.S. tariffs. This would cause U.S. exports of chemicals to Mexico to decrease as buyers in Mexico purchase from lower priced, alternative sources. The chief beneficiaries of Mexico’s retaliation could be chemical producers in China, Europe, the Middle East, and other parts of Asia, who would displace U.S. supply. Chemical manufacturers operating in the U.S. would be greatly disadvantaged with reduced access to the Mexican manufacturing sector and marketplace. Mexico is the top export market for US-manufactured chemicals . $543 million worth of chemical products cross the US-MX border every week. ($78 million daily). Supply chains are highly integrated within the chemicals sector and even more so downstream. 55% of U.S. chemicals imports from Mexico are from related parties and 35% of chemical exports to Mexico are to related parties.

When the US Administration threatened to close the US-Mexico border to goods trade in April 2019, many industries warned the Administration of the immediate negative consequences that would be observed. Closing the US-Mexican border would quickly create instability in the US and in Mexico. Goods manufacturing firms and suppliers to those firms will be forced towards difficult contingency plans or shutdown. This will mean lost production, lost jobs, and lost economic activity in communities across the US and Mexico.

In the automotive sector – one of chemicals most important end-use markets - a border closure would have been catastrophic. An analyst from CAR has stated that the US auto industry would be severely impacted and quickly . The Administration’s decision to enact a tariff that will incrementally increase from 5% to 25% on all imports from Mexico over time will have similar negative impacts but, the reactions to the tariffs will be less immediate. The US-MX auto industry is highly integrated. In some cases, US-MX auto/auto parts trade approaches 100% related party trade. Auto is a key end-use industry for chemicals. Chemicals contribute to about 19% of the weight of a new vehicle. The average value of chemistry contained per light vehicle is $3,000. Plastics and polymer composites are essential to a wide range of safety, performance and aesthetic breakthroughs in today’s cars, minivans, pickups and SUVs. The average light vehicle contains about 332 lbs. of automotive plastics per unit.

Finally, this recent action by the Administration and its timing creates extreme uncertainty for the passage of the USMCA. Failure to pass the USMCA opens the door to the possibility of a US withdrawal from NAFTA, once again. This outcome would be devastating for the North American economy, manufacturers, and, in particular, chemical industries.



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